Here’s How Much Experts Say You Should Have in Your Emergency Fund

When the unexpected happens, whether it’s a job loss, a car accident or a medical procedure, it hits hard, especially for your finances. That’s why an emergency fund is the foundation of any sound financial plan. Unlike high-interest credit cards or loans, which can cause costly debt, an emergency fund creates a buffer in tough times. However, figuring out how much you should stash away isn’t so obvious. 

The amount you need for an emergency fund depends on your financial situation. Generally, to make you feel secure, it needs to be enough to cover your basic expenses for a set period of time. But saving even a small amount of cash in an emergency fund is a good start and can help you build a cushion over time. 

Personal finance experts all agree that an emergency fund is essential to getting through difficult times. However, each has a slightly different approach to determining the right savings target. While most say you can get away with putting aside a few months’ worth of expenses, it always pays to aim higher. Here’s what they recommend.

How much should you keep in an emergency fund?

Before deciding how much you need in an emergency fund, look over your budget and review your monthly living expenses. When calculating a month’s worth of expenses, make sure to include at least the following: 

• Housing (rent or mortgage payment).
• Insurance.
• Household bills (electricity, water, gas, internet, etc.).
• Transportation.
• Groceries.
• Any other essentials.

Use the following recommendations as a guide to determine how much cash will make you feel comfortable in case of an emergency. 

When you have debt: At least one month’s worth of expenses

While you’ll often hear that three to six months’ worth of living expenses is the suitable amount for an emergency fund, that doesn’t consider people with high-interest debt. Saving money while trying to pay off debt -- whether from credit cards or student loans -- can feel impossible. But you shouldn’t sacrifice your financial safety net to speed up debt payoff, according to Erin Lowry, author of the Broke Millennial book series.

“One month of your bare essential living expenses should be the bare minimum emergency fund for someone who is trying to pay off debt,” said Lowry. At the same time, putting aside just $1,000 wouldn’t cover the basic needs of most people, she noted.

If you’re free of debt, you should aim for at least three to six months’ worth of living expenses. But the right figure depends on your risk tolerance and the volatility of your professional industry, Lowry said.

A good starting point: At least three months’ worth of expenses 

At least three months’ worth of expenses is a good starting point for an emergency fund, according to Jared Andreoli, a certified financial planner and founder of Simplicity Financial. Then, you should reevaluate this amount each year as factors change, such as your income, living expenses and so on, said Andreoli. 

Once your emergency fund starts to grow bigger than 12 months’ worth of living expenses, Andreoli recommends transitioning into your next saving goal, such as saving for a home down payment, increasing retirement contributions or opening an IRA.

When you need security: At least six months’ worth of expenses 

To get through an unexpected financial setback, you should have at least six months’ worth of emergency funds, according to Andrea Osorio, senior wealth advisor at Citi Personal Wealth Management. However, Osorio notes that you should evaluate your individual circumstances, financial obligations and job security to determine your financial needs.

To get started, Osorio recommends asking yourself a few questions: 

• Do you have a dual-income household? 
• How many dependents do you have?
• Are you someone with minimal obligations and no dependents?
• Do you have a mortgage or other large recurring debts? 
• Should you lose your job, how difficult is it to find another job?

Depending on these factors, you may want to increase the reserve amount to 12 months, or you may have the flexibility to decrease it to only three months, Osorio added. 

The gold standard for most: Three to six months’ worth of expenses 

Having some money saved for an emergency is always better than nothing, but there isn’t a one-size-fits-all number, according to Frank Newman, chartered financial analyst at Ally Financial. Newman suggests having at least three to six months’ worth of expenses saved so you can cover all fixed monthly expenses, such as your mortgage or rent, debt payments and utilities. 

“Your life circumstances are an important part of the equation, too,” said Newman. If you live on your own and you don’t have any dependents, three to six months’ worth of savings may be just right. However, a family with multiple dependents under one income could require a bigger emergency fund to ease any setbacks, he added. 

When you don’t have a fallback: Six to 12 months’ worth of expenses 

The right emergency fund is dependent on your individual circumstances, said Elizabeth Plot, founder of Primas Financial Planning, but she encourages clients to work toward saving six to 12 months’ worth of expenses when feasible. If you don’t have investment accounts, are self-employed or you don’t have a support network to fall back on in an emergency, you should consider building a larger emergency fund, she added.

When you’re close to retirement: More than one year’s worth of expenses 

Other experts agree that six to 12 months’ worth of expenses is the right amount for an emergency fund. But this should not just cover basic living expenses -- it should cover all living expenses, according to Jill Schlesinger, host of the Jill on Money podcast and business analyst for CBS News. 

Anyone approaching retirement should be even more concerned with how much they’re saving, according to Schlesinger, so they can avoid withdrawing their investments during market downturns. In this case, she recommends bumping up your emergency reserve to one or even two years’ worth of expenses because you won’t have the opportunity to replenish the fund as easily. 

Where to keep your emergency fund

You’ll want to keep your emergency fund in an accessible account that’s separate from your primary checking account so you aren’t tempted to use it in a nonemergency situation, according to Osorio. “An emergency fund should be kept in an interest-bearing, liquid account that can be easily accessed without penalty in short notice,” she said. 

You should also focus on accounts with no minimum balance requirements and no monthly fees, or else you’re losing value in your emergency savings, said Newman. “We know that emergencies happen at all times of the day, so find a bank with easy access to your accounts like a great mobile app, flexible money connections and 24/7 customer service,” he said.  

Here are a few places you should keep your emergency fund:

• A high-yield savings account: High-yield savings accounts are interest-earning savings accounts that are typically found at online-only banks. The best high-yield savings accounts offer rates as high as 5.25% right now. HYSAs are great for an emergency fund because they earn competitive interest and you can access the funds when you need them. 

• Traditional savings account: Most banks offer traditional savings accounts, but these accounts typically pay little interest on your savings. The average annual percentage yield for a savings account is only 0.46%, according to the FDIC. However, if your priority is convenience and not interest growth, maintaining an emergency fund at the same bank as your checking account might be a good move. 

• Money market account: A money market account combines the accessibility of a checking account with the interest-earning benefits of a savings account. Unlike most savings accounts, MMAs generally offer check-writing privileges and debit card access. Some of the best MMAs offer APYs over 4% and 5%. 

Ways to save for an emergency fund 

There’s no universal way to save for an emergency fund. One month’s worth of expenses might be sufficient at first, but once you hit this goal, bump it up to three months, six months or more. Getting into the habit of saving regularly -- even a small amount -- is key to reaching your goal. 

Here are a few ways to add more to your emergency savings: 

• Automate transfers to a high-yield savings account. Set up automatic transfers from your checking account to your high-yield savings account, so a set amount goes to your emergency fund at the end of each month. 

• Establish a budget. Evaluate your monthly expenses and bills to see where you can cut back to put more toward your savings. You may be able to downgrade your cell phone plan or temporarily pause a streaming subscription to save more. 

• Put extra income directly into your emergency fund. Set aside any cash windfalls, such as a work bonus, birthday money or your tax refund. These unexpected funds can help you get ahead of your goal. 

When to use the money in an emergency fund

The purpose of an emergency fund is to avoid draining your checking or savings account in an emergency. But it also keeps you from taking on high-interest debt with a credit card or personal loan. 

“You should only use your emergency fund when facing a real emergency such as a job loss, medical emergency or caring for a loved one in a time of need,” said Osorio. “An emergency fund should not be used as vacation money or as a regular spending account.” 

But an emergency fund also keeps you from having to take away from other savings goals, said Newman. “If something comes up that causes you to potentially dip into your savings account, it’s probably better to use your emergency fund,” he said. “That’s what it’s there for.”

What to do once you’ve reached your savings goal

Financial goals are always a balancing act. You don’t necessarily need to prioritize just one savings goal before moving to another -- you can juggle both if that’s what your budget allows. But once you reach your goal, you can reallocate your money to other goals, said Lowry. “It’s also a good practice to reevaluate your financial goals every few months to ensure they’re still in your best interest and aligned with what you want to achieve,” she said. 

Just because you’ve reached one financial goal doesn’t mean you should stop putting money away. “You’ll have the freedom to add the excess amount to your regular deposit account, to invest it or even add it to that vacation fund you’ve been wanting to contribute to,” said Osorio. 

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This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.