It's important to have money in savings for unexpected bills and financial emergencies. You never know when you might need to spend money on a home repair, or when you might lose your job through no fault of your own. Having a solid emergency fund could make it so you don't instantly need to reach for a credit card -- and rack up a costly balance -- when life doesn't go your way.
As a general rule, it's a good idea to have enough money in an emergency fund to cover three full months of essential bills. If you're able to save beyond that point, even better. But seeing as how 63% of Americans don't have enough money in savings to cover an unplanned $500 expense, according to a recent SecureSave survey, even hitting the three-month mark may be a stretch for a lot of people.
Meanwhile, you might have a fairly large savings balance to the tune of $20,000. That's definitely a lot of money. And in some cases, that might constitute a really robust emergency fund. But in some situations, a $20,000 emergency fund might also leave you short.
Why $20,000 in savings may not be enough
Considering that so many people don't even have $500 in savings, you may be wondering how it can be that a $20,000 emergency fund isn't adequate. The answer is that it may be more than adequate for you. But it's not necessarily adequate for everyone.
When calculating what you need to have in emergency savings, it's important to add up your personal expenses. And if you happen to spend a lot of money on living costs, it's possible that a $20,000 savings balance wouldn't suffice in sustaining you for three months without a paycheck.
Let's say your essential spending reads as follows:
- $3,000 a month on housing, including your mortgage payment, property taxes, and insurance
- $1,000 on car payments and auto insurance
- $800 on groceries
- $200 on medication
- $600 on utilities
- $200 on cellphone service
- $1,200 a month on childcare
All told, you're spending $7,000 a month on essentials. A $20,000 emergency fund might cover close to three months of bills, but you might come up a little short.
On the other hand, let's imagine your personal spending on essentials amounts to half of that amount each month, or $3,500. In that case, you're in excellent shape with a $20,000 emergency fund.
It's all about you
One mistake people tend to make when saving for emergencies is landing on a random number and assuming it'll work for them. It's easy to see why you'd think a $20,000 emergency fund would be more than adequate. But if your expenses are higher than average, that may not cut it.
So spend a few minutes adding up your essential bills to see what your personal spending amounts to monthly. And then multiply that by three to get your minimum emergency savings target. It's really that simple.
Of course, you may find that you have nowhere close to three months' worth of bills in savings, and that's not necessarily something to panic over, either. Building that safety net can take a lot of time.
But if you see that you have work to do, make a plan. Set up an automatic transfer to send an extra $100 a month into your savings from this point forward, or an extra $50 or $20 if that's what you can swing. The key is to know what to aim for and do your best to get there.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
FAQs
And if you happen to spend a lot of money on living costs, it's possible that a $20,000 savings balance wouldn't suffice in sustaining you for three months without a paycheck. Let's say your essential spending reads as follows: $3,000 a month on housing, including your mortgage payment, property taxes, and insurance.
What percentage of Americans have a $1000 emergency fund? ›
Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate's survey of more than 1,000 respondents conducted in December. That is up from 43% in 2023, yet level when compared to 2022.
Should I keep my emergency fund in cash or invest? ›
Long-term investment accounts, like retirement funds, can make it difficult or costly -- in terms of fees, taxes or penalties -- to access your money when needed. “It shouldn't be invested,” said Jeremy Schneider, founder of the Personal Finance Club. “If it's invested, it's not your emergency fund.”
Is a $5,000 emergency fund enough? ›
Saving $5,000 in an emergency fund can be enough for some people, but it is unlikely sufficient for a family. The amount you need in your emergency fund depends on your unique financial situation.
Why shouldn't you use money from your emergency fund? ›
Try to avoid using your savings on nonessential items and services, such as a vacation or entertainment expenses. Here's a good barometer: Consider whether you actually need something to survive. If not, think twice before using emergency fund money for the purchase.
How many Americans have $100,000 in savings? ›
Most American households have at least $1,000 in checking or savings accounts. But only about 12% have more than $100,000 in checking and savings.
How many Americans have $500 in savings? ›
According to the survey, 49% of Americans have $500 or less in their savings account, with 36% reporting they have less than $100 saved up.
Is $10,000 too much for an emergency fund? ›
Those include things like rent or mortgage payments, utilities, healthcare expenses, and food. If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance.
Is 25k a good emergency fund? ›
Someone with minimal expenses will need to save less, while someone with more costly expenses should save more to prepare. Let's imagine you need $2,000 a month to cover your living expenses. With this number in mind, $25,000 would be more than enough to cover an entire year of expenses.
Is $30,000 a good emergency fund? ›
Most of us have seen the guideline: You should have three to six months of living expenses saved up in an emergency fund. For the average American household, that's $15,000 to $30,0001 stashed in an easily accessible account.
A $20,000 emergency fund might cover close to three months of bills, but you might come up a little short. On the other hand, let's imagine your personal spending on essentials amounts to half of that amount each month, or $3,500. In that case, you're in excellent shape with a $20,000 emergency fund.
What is a realistic emergency fund amount? ›
While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
How much cash should I keep at home? ›
“We would recommend between $100 to $300 of cash in your wallet, but also having a reserve of $1,000 or so in a safe at home,” Anderson says. Depending on your spending habits, a couple hundred dollars may be more than enough for your daily expenses or not enough.
What is the most common mistake made with emergency funds? ›
Stay on track and increase resilience by avoiding these five emergency savings mistakes.
- Not Saving Enough. ...
- Ignoring High-Interest Debt. ...
- Taking Saving Too Far. ...
- Investing Your Savings. ...
- Dipping Into Your Emergency Fund. ...
- Take No Gambles With Emergency Saving.
Drawbacks of Emergency Funds
By adding money to an emergency fund, it reduces the option of allocating any additional funds to other programs, such as retirement savings or paying down a mortgage. Thus, emergency funds reduce the likelihood of achieving other financial goals.
Do 90% of millionaires make over $100,000 a year? ›
Dave Ramsey recently conducted a study of over 10,000 millionaires. Although some millionaires have high-paying jobs, only 31% average $100,000 per year during their careers. The keys to becoming a millionaire are spending wisely and investing consistently.
How many people have $1000 for an emergency? ›
Planning for the unexpected is crucial since life doesn't always go as planned. But only 44% of Americans are prepared for a $1,000 emergency expense, according to a survey from financial analysis site Bankrate.
How many Americans have at least $1,000 saved? ›
A stunning new Bankrate survey of 1,030 individuals finds that more than half of American adults (56%) lack sufficient savings to shoulder an unexpected $1,000 expense.
Does the average American have $1000 in savings? ›
Key Takeaways. More than one in four Americans (28%) have savings below $1,000. This is the case for 32% of Gen Zers, followed by Millennials at 31%, Gen X at 27% and Baby Boomers at 20%.
What percent of Americans can't cover a $1000 emergency? ›
Bankrate's latest survey results found 56% of U.S. adults lack the emergency funds to handle a $1,000 unexpected expense and one-third (35%) said they would have to borrow the money somehow to pay for it.
