Everything You Need To Know About Emergency Funds

An emergency fund is something I believe everyone should have. However, according to a report by Bankrate.com, 26% of Americans have no emergency fund whatsoever for when they need money fast. According to this same report, only 40% of families have enough in savings to cover three months of expenses, with an even lower percentage…

Michelle Schroeder-Gardner

Last Updated: May 25, 2023

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Everything You Need To Know About Emergency FundsAn emergency fund is something I believe everyone should have. However, according to a report by Bankrate.com, 26% of Americans have no emergency fund whatsoever for when they need money fast.

According to this same report, only 40% of families have enough in savings to cover three months of expenses, with an even lower percentage having the usually recommended six months worth of savings.

This is frightening to me, as having an emergency fund can greatly help a person get through tough parts in life.

For us, we have a 12 month emergency fund.

I’ve always been open about this. I am a rather big worrier about things, and having a large emergency fund gives me peace of mind, especially since we are self-employed and our income can vary from month to month.

Even if you aren’t self-employed, there are many other reasons to have a fully-funded emergency fund:

  • An emergency fund can help you if you lose your job. No matter how stable you think your job is, there is always a chance that something could happen where you may need money fast. What would you do if you lost your job and didn’t have an emergency fund?
  • An emergency fund is wise if you do not have great health insurance. This is another reason why we have a well-funded emergency fund. We do not have the greatest health insurance, with our deductible being over $12,000 annually. Having an emergency fund can help protect us if something were to happen to either of us.
  • An emergency fund is a good idea if you have a car. You just never know if it may need a repair.
  • An emergency fund is a need if you own a home. One of the lucky things that homeowners often get to deal with is an unexpected home repair. Having an emergency fund can help you if your basement floods, if a hole in your roof forms, and more.
  • An emergency fund can protect you in many other areas as well. This can include if you have a medical cost for your pet, if you have to take time off work for something, you need to go somewhere far to visit someone who is sick, and so on. The list of reasons for why you might need an emergency fund can be a long one.

Emergency funds are always good to have because they can give you peace of mind if anything costly were to happen in your life. Instead of building onto your stress because of whatever has happened, at least you know you can afford to pay your bills and worry about more important things.

An emergency fund is also wise to have because it can help prevent unnecessary debt. There are too many people out there who count on their credit cards as their emergency fund and that is not a good idea. It can lead to debt spiraling out of control because of high interest rates.

Below is what you need to know about emergency funds for when you need money fast.


Should you have an emergency fund if you are in debt?

Yes! I still think you should have an emergency fund even if you have debt. If you have debt, then the usual recommended amount is to have $1,000 in your emergency fund before you start paying down your debt.

After that amount, you need to determine what you are comfortable with.


How much should be in an emergency fund?

The next question I often hear is “How much should be in an emergency fund?” How much money you decide to keep in your emergency fund is dependent on your specific situation. If you don’t have debt, then I usually recommend at least six months of expenses.

For us, I like to have one year of expenses saved since we are self-employed, own a house (although that will be changing soon), we have a high deductible health insurance plan, and for a few other reasons. There are many reasons for why a person might need money fast, and you need to analyze your specific situation.


Where should you keep an emergency fund?

Your emergency fund is there so that when you need money fast, you can use it. Due to this, you will want to put your money in a place where you can easily take it out. This means you do not want to be penalized for taking the money out and you probably don’t want to invest it in a high risk investment as you don’t want to lose it either.

I prefer keeping an emergency fund in a low risk savings account, such as any basic savings account that you will find at a bank. This way it is easily accessible in case anything were to happen and I needed the money quickly.

You can also save your emergency fund in a CD and/or money market account so that you can earn a little in interest. Keep in mind though that you might earn more in interest because there is a more risk.


How can I save enough money to fully fund my emergency fund?

After reading all of the above, I bet you cannot WAIT to start your emergency fund 🙂

It may be hard in the beginning to start saving for your emergency fund, but everyone has to start somewhere and it’s always best to be prepared for when you need money fast. You can save money for your emergency fund by setting out a certain amount out of each paycheck, or you can work towards making extra money so that you can build up your emergency fund even quicker.

Do you have an emergency fund? Why or why not? How much do you keep in it?

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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Great post! It’s always surprising how many people have never thought of having an emergency fund.

    My mum always told me I should have at least 6 months worth of expenses readily accessible for emergencies, and that’s what I try to stick to. It has been tricky recently as we have bought a home, a car and a dog all within the space of 2 months, so the amount we’d need in an emergency has rocketed!


  2. Michelle covered it all. What else do I need to know about emergency fund? Hmm.. The higher amount we put in the emergency fund the better. That’s what I do.

  3. Amy

    We do have an emergency fund, although it’s closer to the $1,000 recommendation, than 4-6 months of expenses. We keep it in a money market fund, so it earns a tiny amount of interest. Have such a small buffer – especially since we also have a lot of debt – is stressful to me. In a stroke of very good luck, an elderly family member has decided to give away some of his money, and I’ll be receiving several thousand dollars shortly. While I’m temped to use it to pay off debt, it’s all going into our emergency fund. We will allow ourselves to use some of it if we have a large tax bill, but the rest we’d plan to leave there.

    1. That’s great that you can beef up your EF a little more. Sounds like a good plan.

  4. I do have one, although it’s currently small ($1500 — I’m planning to up that to $5000 over the course of this year) but honestly, I kind of hate it. I’m trying to get over that, because I know it’s a good idea for all the reasons you lay out, and I think I have enough willpower to stay strong here. But I fundamentally, emotionally, don’t like having money sitting in an accessible savings account. I constantly feel tempted to do something with it (feed my IRA fund, go on vacation).

    1. You might want to think about switching your EF to a different bank. That way you won’t easily see it!

  5. We keep a large emergency fund because I am self-employed and we own rental properties. Having multiples furnaces and air conditioners is a good reason to have extra money on hand! I like to have more than I need whenever possible.

    1. Yes, another great reason to have an EF!

  6. Heather Steel

    After paying down all my debt, I’ve been able to re-build my EF to about 6 months worth of expenses. I love having it there! After living pretty precariously for a while, it is so nice having some back up.

    I believe that an emergency fund is solely for major emergencies – I lose my job, or a major health crisis interferes with my ability to earn money. It covers the basics of living only. I have “planned spending” accounts for other expenses that I know are coming – this would include anything related to owning a house or car, an emergency plane ticket home in case something happens etc. If you have the income to be able to do this, I think it helps stop you from spending that EF…it’s a slippery slope and you might find yourself justifying all sorts of things as emergencies.

  7. I’ve kept an emergency fund of a few thousand in cash savings for as long as I can remember. Was very thankful to have had it last year when the central heating system packed in just at the British winters started. Because of the quick and easy access to cash I was able to have a plumber out the next day to do all the required repairs and get the maintenance up to a level that it hopefully won’t need looking at again for a decade.

  8. We have an emergency fund! We have a 6 month fund today, while getting out of deb we maintained a $1k e-fund and it covered all that life had to throw at us.

  9. Taylor Lee

    I have about 6 months worth of expenses in my savings account for my EF. I’m doing my darnedest not to look at it as I buy houses (“it’s an extra bit of money I can use for downpayment…”) since I’d still like a cushion for all the house-related emergency costs that will be coming up.

    1. Good job on having 6 months!

  10. Beks

    I took Financial Peace University through my church last year, and the first thing Dave Ramsey said to do was save a $1000 emergency fund. I’m still working on this, but as I’ve saved, the money has come in handy just for what it’s supposed to. It’s great having it, just not so great having to build it back up.

    1. Yes, it is definitely great having it.

  11. Fervent Finance

    I believe a large emergency fund is essential to someone who is self-employed. That paycheck is usually less guaranteed than us in corporate world, I said usually… :). The large emergency fund is a great way to protect yourself from lumpy income, or a downturn in your business. But for individuals who have a pretty consistent income via payroll wages, I think most can get away with a much smaller emergency fund as long as they can access some of that money via after-tax accounts for example.

    1. But, you never know if a medical issue will come up that will prevent you from working. You just never know!

  12. Building an emergency fund is literally step one for just about all of my clients. I do not let them rest until they have that safety net in place. Once it is, then we focus on other financial goals, but more people get into financial challenges from NOT having an emergency fund more than any other financial item as far as I am concerned.

    1. Yes, an EF is SO important. Too many people skip over it.

  13. I don’t have an emergency fund. My income comes from so many different places, it’s virtually impossible they even dry up (in a relatively short period of time) to the point where I can only cover my living expenses. Income diversification is my emergency fund, I guess.

    Note: I’m still on my parents insurance plan which has an extremely low deductible. I have two vehicles so if one gets totaled, I’m fine while insurance sorts it out.

    1. That’s nice that you are still on a parent’s insurance plan. Neither of us has been on a parent’s insurance since we were 18 so we’ve always had to be more careful.

  14. Great post! So many of my friends don’t have an emergency fund, and the main reason is “we’re young, we don’t need one” – not sure how that makes any sense.
    We have an emergency fund, even though we’re in debt and don’t own a home. We can put a little in each month and try to build it so that if something does come up that we need it for, we don’t go further into debt. It only makes sense to me 🙂

  15. Emily @ Simple Cheap Mom

    We’re a single income family with a house and car, so I definitely want us to be prepared for emergencies. We set aside money in our budget each month for home and car repairs. For our emergency fund, we keep a big cushion in our chequing account, then we invest the rest where we could access the money in a couple days (our line of credit/credit cards could bridge the gap during those couple of days). We’re comfortable with this setup for now. It gives us piece of mind to know that we could deal with life’s normal emergencies.

  16. Emergency funds are crucial! I’d add ‘if you’re human, it’s a good idea to have an emergency fund’ :). I agree with you on a minimum of 6 months of living expenses. I’m also a worrier, so like you, we keep a year on hand, but I think 6 months is a great starting point.

    1. Yes, 6 months is definitely a great amount to have.

  17. Elroy

    CD’s have no more risk than a savings account and are backed by the FDIC. The risk is loosing your interest accrued, but varies from place to place. Since the FDIC insures an amount, and not the number accounts, I break my accounts into the min (usually $1k to $2.5k) so if I do need the money, I only take the hit on what I need. I also use a revolving CD ladder of $50k and have $10k or so in a savings account. This year I want to start a muni bond ladder, but will probably start at 1 year terms and then each year add another bond [ year 2 I will take out 1 year and 2 year].

    1. I should have further explained what I meant. When I said “risk,” I meant that if you needed the money eventually (that being the risk), then you would take a hit.

  18. We’re one of those families with no emergency fund 🙁 All of our efforts have been focused on paying off debt, however, I trust your advice. Maybe we should start by putting small amounts in a savings account over the next year?

    1. Yes, I would definitely at least build a small one. You never know if you may need it.

  19. Good luck! You can do it 🙂

  20. Good job! Yes, definitely better than nothing. When do you think it will be fully funded?

  21. Sarah

    Having an emergency fund is SO important. I’ve heard (more the once) the argument that you don’t need an emergency fund because “that’s what insurance is for”. We have excellence insurance all the way around (home, car, medical, dental) but there are still those expenses that pop up that are not covered by insurance or warranties.

    1. Nope, insurance is definitely not enough!

  22. Nikki Frugal

    Thanks for the great article! MK thinks I’m being too over the top with wanting a years worth of EF for us. But with all the uncertainty (like loosing your job out of nowhere) and the current economy it just makes more sense to cover yourself even more!

    1. I don’t think it’s too over the top at all!

  23. Yes, I have an emergency fund separate from my normal checking and savings account in my bank. I just seriously started saving for it in the Fall of 2013. I always had a small one, but it got used up and then some when my old car needed a lot of repairs. I’m currently working up to 6 months worth of expenses. I’m over a third of my way to my goal that I hope to hit by the end of next year. Having a designated E-Fund definitely helps me sleep better at night.

  24. I currently have an emergency fund of $500. I plan to get it up to $1000 by April. Doing that and paying off this debt is no joke.

  25. Kayla @ Shoeaholicnomore

    Right now mine only has just over $500 in it, but I’m adding to it each month. I don’t want to stop at $1k even though I have debt to pay off. I want to keep building until I hit the 3-6 months of expenses mark. Slow and steady wins the race right?

    1. Good job Kayla! You are doing well 🙂

  26. It really surprised me today when a coworker told me she had less than $100 to her name at the end of every month. Yikes! I’ve always been paranoid about being in a situation where I needed access to a larger amount of money (emergency) so I’ve always made sure I have enough to keep me covered for at least 6 months. I want to work it up to at least 12 months, but its a slow process with debt.

    1. Yikes! That is scary to have only $100 at the end of every month.

  27. Emergency funds are a must, especially if you’re in debt. Not having one can allow you to sink into deeper debt when the unexpected pops up. I’ve had to use my EF a lot for my car unfortunately since I drive so much. Since I am aggressively paying down debt, I’d be comfortable with at least 2 months of expenses in my EF. $1000 is not enough for me and could be gone in a flash. Anything can happen.

  28. Adam @ AdamChudy.com

    I find it pretty amazing that the average person (of decent income) doesn’t keep a buffer between them and missed rent, car payments, and mortgages. I’m a believer in the 6 month rule and 12 is not unreasonable.

    1. Thanks! I agree 🙂

  29. Ack yeah that sounds a little excessive 🙂

  30. Emergency funds are awesome and I’m really glad I had one in place when I lost my job!

  31. I don’t own a home or a car, but I still like to keep a sizable emergency fund- especially with my unpredictable and variable income.

    1. Yes, a great reason to still keep an EF.

  32. Tie the Money Knot

    We should really expect the unexpected. Life does not generally go 100% exactly according to plan, for better or worse. In the case of the latter, it’s good to have short-term expenses covered. I really think that 6-12 months is good, particularly if self-employed, or the household is reliant on one primary source of income.

  33. Gary @ SuperSavingTips

    We used to have a large emergency fund, but over time it has taken a few hits. What I rarely see talked about is replenishing your EF, which is just as important as establishing one from the start. One of our goals this year is to bulk our EF back up for more security.

    1. Good luck with your EF goal 🙂

  34. Wow, Michelle, you have a great emergency fund! I’m still working on mine, I hope I will have a solid emergency fund too!

  35. Sassy Mamaw

    As a kid, I remember my Dad saying I should have a “rainy day” fund. I had no idea what he meant. For a long time, I thought it meant having money to go shopping or to a movie if it rained! As a young adult, I had a couple of different times where I paid off my debt, but something always came up, because there was no emergency fund. Once I learned about the real purpose of an emergency fund, it seemed an impossible goal. Finally I learned the idea of keeping $1000 back for emergencies while paying off debt. That clicked for me. So here I am, in my mind 50’s, still paying off debt, but now have had the money set back to cash flow several unexpected events, and am intending to save up a “real emergency fund” over the next two to three years. My hub and I are lucky, because we both have good insurance, and short term disability through our work, plus generous severance, if we were to lose our jobs. I hate that I learned this lesson so late, but I’m happy to have finally learned it!

  36. Maureen

    My husband and I have two Emergency Fund. My EF has $40,000 while my husband has a lot more. Not sure when I want to stop! We have no debt but our mortgage that will be paid off within the year.

  37. Kirsten

    I have student loans I’m slowly paying off, and only $200 in savings. I’m trying to cut corners and start putting more in my savings over time now, but I also want to save for a house. Would you recommend that my savings for my house and emergency fund be the same or separate? I just can’t afford to put money into two savings right now 🙁 but I really need to start saving for a house while I’m also trying to save enough back up funds to be self employed one day.

  38. Amanda

    I follow the Dave Ramsey steps and I have a $1000 emergency fund right now. I’ve had to dip into it recently because the snow and ice here in Buffalo, NY has done a number on my exhaust system on my car. But if I use it, I stop paying extra towards my loans (2 more left) and I put the money right back into the savings. When I lost my last job the emergency fund helped out even though I didn’t have to use it. But it was there just incase and I felt safe. Once my loans are paid off, one more year, I will work on having a 6 month emergency fund. Not many people I know have this. Usually, they’ll charge an emergency on credit. Thankfully, I have the funds available so I won’t get into any trouble with credit cards

  39. Hey from MN

    Thanks for the great article! I’m surprised you didn’t mention a HSA for your medical emergency savings. It’s a triple tax break (a deduction for contributions, tax-free growth and tax-free withdrawals.)