Before you pay off debt, before you plan a trip, before you start working toward your goals, before you buy your next pair of shoes, you must have a savings account with some money in it. Period.
A savings account (or an emergency fund) is basically insurance against life, because life is going to happen. Your car is going to break down. Your hot water heater is going to bust all over your garage. Your best friend will have an emergency and need you to bail them out of jail. (Okay, hopefully not that one.)
Where Should I Keep My Emergency Fund?
Your emergency fund should be in cash, not in stocks or bonds or anything else you can’t get to easily.
Get a savings account with limited access. My savings account is at a different bank from all my other money. I purposely don’t even have a debit or ATM card for it, so that I cannot get to it on an impulse. If I can access it and withdraw $20 at a time, I will do stupid things with it. Because I know this about myself, I have limited my own access.
If you don’t have a ton of money to start with, find an account with no fee for falling below a minimum. Bank fees are completely absurd; never pay bank fees. Suckers pay bank fees, and you are not a sucker.
How Much Should I Have In My Emergency Fund?
The popular number is $1,000. That is what most people recommend because it is an achievable number and not too intimidating.
But I want you to sleep at night, and with housing costs soaring, $1,000 is not enough. Most people reading this are not be able to keep a roof over their heads for a month with $1,000 and no job.
In my book Singles: Take Control of Your Own Financial Journey I walk you through how to figure out a good number for your emergency fund. But if you don’t want to grab that just estimate how much cash you need to survive for a month. I want that to be your first goal for your savings account.
Don’t freak out. You can do it.
If you don’t have anything in savings, you are not alone. In 2016, 63% of Americans did not have enough in savings for a $500 emergency. In November 2015, a survey found that one in three American families had no savings at all (cited here). Don’t worry, you can easily move into that other 37% by making a few changes.
If you would like to earn more on your savings check outHow To Find Savings Accounts That Pay More Money!
How Much Should You Have in Your Savings Account?
If you don’t have debt, your goal should be six months of living expenses. Make sure they are living expenses and not happy hour cash, season tickets to a local sports team, and pizza delivery three nights a week. If you end up having to use your emergency fund, you will need to make some lifestyle adjustments until you get back on your feet.
That Number is Huge! How Do I Do It?
Pay the minimum on your debt until you get that amount in your emergency fund. This fund is your number one priority for money you do not need to pay basic bills. I don’t care how high the interest rate is or how close you are to paying off a debt; get your emergency fund filled first.
Designate money in your budget just for savings. Chapter 12 in my book walks you through this if you want some help. Pay your savings account at the beginning of the pay period when you pay your other bills and don’t touch it. If possible, set up an automated transfer so that you save money without thinking about it.
Until you get this money into your emergency fund, cut all extra spending. Watch your friends eat when you go out. Don’t splurge on items that aren’t needed. This is your top priority. Once you have an emergency fund, you can add those items back in. I recognize how important they are to singles, but this is more important. And if what you are making right now isn’t enough, work on increasing your income.
Once you get your emergency fund completed, you can start paying off your debt, and sleep better at night.
FAQs
How much should you save? 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.
Is $20000 enough for an emergency fund? ›
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.
Is $5,000 a good emergency fund? ›
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.
Is 10k a good 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 $100 K too much for an emergency fund? ›
It's important to have cash reserves available, but $100,000 may be overdoing it. It's important to have money available in your savings account to cover unforeseen expenses. Plus, you never know when you might lose your job or see your hours (and income) get cut, so having cash reserves at the ready is important.
Is having 15k in savings good? ›
Generally, having at least three to six months of living expenses can offer a safety net if you experience job loss or a medical emergency. For example, if you have monthly expenses of $5,000, aim to save $15,000 to $30,000 in your emergency fund.
How much should a 30 year old have saved? ›
Fidelity suggests 1x your income
So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.
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 much should a 22 year old have saved? ›
Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
How many Americans have no savings? ›
As of May 2023, more than 1 in 5 Americans have no emergency savings. Nearly one in three (30 percent) people in 2023 had some emergency savings, but not enough to cover three months of expenses. This is up from 27 percent of people in 2022. Note: Not all percentages total 100 due to rounding.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How many people have $10,000 in savings? ›
Most Americans have $5,000 or less in savings
| Savings account balance | Percentage of respondents |
|---|
| $1,001 to $5,000 | 22% |
| $5,001 to $10,000 | 8% |
| $10,000 to $20,000 | 7% |
| Over $20,000 | 14% |
3 more rowsOct 18, 2023
By age 40, you should have saved a little over $185,000 if you're earning an average salary and follow the general guideline that you should have saved about three times your salary by that time.
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.
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.
Is 30k too much for 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.
Is $20,000 in savings good? ›
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
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.
How much should a 20 year old have in emergency fund? ›
For the most part, the amount of money you should have in your emergency fund will depend on your monthly expenses. Financial experts typically recommend saving up three to six months' worth of necessary expenses in order to have a healthy, fully-funded emergency account.
