All About Emergency Savings Funds

Why to Have Emergency Savings

The reason for emergency savings funds is emergencies, of course. But what kinds of emergencies? Young savers especially may thing that the kinds of costly, paycheck-eating emergencies don’t apply to them. Here are some instances in which emergency funds are critical for households of any size:¹

• Medical emergencies. Even with health insurance, medical bills can pile up quickly. If paying medical bills isn’t a concern, a health emergency or ongoing issue may mean missed wages.
• Job loss. Getting let go is bad enough—struggling to make ends meet afterward will only make it worse. Leaving a job voluntarily to find a new role or start a small business also requires a buffer to keep expenses handled in the interim.
• Home or car repairs. Homeowner’s insurance, renter’s insurance, and car insurance—none of these covers everything that might happen to your home or vehicle. Saving for the what ifs prevents stress over the “What now?”
• Unplanned expenses. Any number of unplanned expenses can pop up when you least expect: Travel needs, replacing something necessary, a pet emergency—the list is near endless. Having an emergency fund can make the difference between limping along or leaping forward.

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn more

How Much to Have in An Emergency Fund

There aren’t any hard-and-fast rules when it comes to figuring out how much you should have in an emergency fund. Contemporary financial experts offer different amounts to reach, including:²

• One month of expenses
• Three months of expenses
• Six months of expenses
• A baseline of $1,000 with three to six months of expenses
• Six to nine months of expenses
• Eight months of expenses
• Three months to a year of expenses
• Six months of a year of expenses
• A year of expenses

See? No one can agree about what—if any—rules there are for emergency funds. Additionally, some experts will also say that if you’re coupled, you should be saving less; if you have children, experts may suggest saving more.² A safe bet for households of all sizes is to fill an emergency savings fund with three to six months’ worth of expense to start³, then adjust based on month-to-month need.

Tips for Establishing an Emergency Fund

Establishing an emergency fund may feel daunting, but it doesn’t have to be in practice. There’s no expectation that emergency savings funds be fully funded as soon as you start them—it’ll take as long as it takes, no matter your income, and that’s OK. Here are some tips for budgeting for emergency savings and finding additional opportunities to add to your account:⁴

• Decide your initial savings need. Whether you aim for three-to-six months’ worth of expenses or less or more, choose a goal to aim for. Try not to change this goal until it’s reached.
• Calculate ongoing savings opportunities. Examine your existing monthly budget—or, if you don’t yet have one, how much your monthly expenditures are—and see what you can comfortably afford to put aside as savings—then start doing just that. Consider using direct deposit from your employer to move that savings amount into your emergency funds account before it hits your checking account.
• Look for unexpected opportunities to save. If you cancel a subscription, get a tax refund, or earn a bonus at work, consider contributing most or all of that money to your emergency fund—especially if you weren’t already counting on it for your monthly budget.

Saving for an emergency may feel daunting, but it doesn’t have to be a daunting process. With these tips and a flexible program like Microsoft Excel, you can set yourself up emergency fund savings success and financial security.