How Much Money Should You Have in an Emergency Fund?

How Much Money Should You Have in an Emergency Fund?

Have you ever wondered if you have enough saved for a financial hardship like a job loss or massive unexpected health care costs? A couple’s best friend, and the solution to their worst financial nightmares, is an emergency fund. A strong emergency fund is your “insurance” for financial hardships. And the good news is: it’s free.


Don’t have an emergency fund?

Get one. Start with this: open an appropriate bank account for an emergency fund today. Now, get the balance of that account up to $1,000 as fast as you possibly can. That’s your bare minimum starting point for your emergency fund.


Hierarchy of financial needs

Remember studying Maslow’s Hierarchy of Needs in Psychology class? If you do, you’ll remember that the theory suggests that a human needs physical and safety (food, water, shelter) needs to be met before they can get to needs like confidence and creativity.

Well, if you’re married and you want to build a strong financial future for the two of you, you should look at an emergency fund as the “food, water, and shelter” of your financial needs.

The point of having an emergency fund is that you won’t have to go into debt if you run into a crisis.


Start with $1,000

As I stated before, it’s extremely important to have at least $1,000 in your emergency fund. This will at least give you some peace of mind. In order to get here, all you have to do is put the emergency fund into your budget.

“This month, we can put $500 into our emergency fund.”

Sweet! Next month you can match that and get to $1,000. Isn’t math fun?


How much is enough?

After you’ve built a small emergency fund, the goal is to grow it to be 3-6 months of essential expenses (link to budget template blog article) for your family.

So, you just need to find out how much money your family needs to live on each month.

Then, decide how many months of income replacement you are comfortable with having saved. Are you a one income household? Then maybe you’ll want to save close to 6 months (or more) of expenses. This will give you a larger cushion if your main income source lost her/his job.

Are you a two income household? Then maybe you’ll be comfortable with having close to 3 months of expenses saved. Remember: this is a discussion you’ll have to have and agree on with your spouse.

Let’s do an example and some quick math.

Jimmy and Jane make a combined income of $87,000 a year (this number doesn’t matter).

They create a monthly budget, so they know they would need about $2,800 a month to survive if they both lost their jobs.

They decide, together, that they want to have 4 months worth of expenses saved up.

$2,800 in expenses replacement multiplied by 4 months equals $11,200.

There you have it! After you agree on how much money you would like to have in your emergency fund, all you have to do is save up!

Make your emergency fund a big part of your budget. Put as much as possible in that fund each month until you’ve reached your goal.

When you have that cushion, you will feel at ease about your ability to weather storms. If you total your car, you’ll be fine. Grab your partner and get going!

Leave a Reply