How Much Should You Save for Your Emergency Fund

Among personal finance experts, there’s a rule of thumb for determining how much people need to have saved to be able to handle an emergency. It’s enough to cover some three-to-six months of your expenses.

But is that the right amount to have saved in an emergency fund? Let’s say your emergency comes in the scenario of being laid off from your job. Having three-to-six months worth of your household expenses saved would cover all of your bills, assuming your expenses are going to be exactly the same for three-to-six months. But your expenses aren’t going to be the same, are they?

In that scenario, you’re likely going to take actions to minimize your living expenses by paring back what you spend to just the essentials. Things like shelter, food, utilities, transportation, and other things that will help you regain an income, which these days means things like mobile phone and internet access. You may even have access to an alternate source of income, like unemployment benefits, that may cover part of your essential expenses.

We’ve built the following tool you can use to better dial in on how much you might need to have saved to cover your essential expenses for a one, three or six month period of time. If you’re accessing this tool on a site that republishes our RSS news feed, please click through to our site to access a working version.

We’re only covering up-to-a-six-month period because most states’ unemployment benefits expire after that amount of time, so the category of “offsetting alternate income” would be zero after that point in time, unless you have another alternate source of income.

Most of the default values are ones we extracted from the 2023 Consumer Expenditure Survey for the indicated category. “Debt” is not one of those categories, but that’s where we inserted the value for transportation, which involves a car loan for many people.

We included insurance as an essential expense because in many cases it’s required (home insurance will often be required by a mortgage lender, the liability portion of car insurance is required by most state governments).

The “other” category is the one you’ll want to weigh what’s essential and what isn’t among your typical monthly expenses. The default number there groups expenses for things like entertainment, apparel, household furnishings, personal care, miscellaneous, etc., some of which may be essential but many of which will not qualify. It’s up to you to determine what is and is not an essential expense for you.

What we haven’t covered yet is where you should keep your emergency savings fund, which we’ll take on in the next installment of this short series. Speaking of which, to call back the previous entry in the series, please compare the target savings value you get from using this this tool with what some unexpected expenses can cost.

Image credit: Stable Diffusion DreamStudio Beta. Prompt: “A side view of a piggy bank with the word ‘Emergency’ written on it.”