How Much Should I Have in an Emergency Fund?

Expanding Your Emergency Fund

Once you have your first $1,000 saved, it's time to beef up your emergency fund to handle bigger emergencies, such as a job loss or medical situation. Of course, you hope that these issues never arise, but at least you can be prepared if they do. Most experts recommend saving up enough to cover three to six months2 of expenses to be safe. If you have a highly variable income or an unusually high level of financial responsibility, saving up to 12 months of expenses can potentially be a good idea.

The good news here is that you don't need to save for every single expense that you would have during more financially stable times. For instance, don't worry about saving enough to cover retirement or 529 contributions — you're planning for a financial emergency, after all. And there are likely items in your budget that you could easily cut back on during tough times, such as your streaming service subscriptions or weekly takeout. Instead, take a look at your family budget and aim to save for your monthly fixed and variable expenses, minus savings and discretionary spending.

Keep in mind that even if you can afford it, you don't want your emergency fund to be too big.3 It should be enough to float you through tough times, but not so large that you neglect other important financial goals such as paying down debt or investing.

And remember, if you need some guidance regarding how much, exactly, you should have saved based on your expenses and lifestyle, it never hurts to get a professional opinion.

Adjusting Your Emergency Fund

While the above suggestions are a great place to start, creating a target for your emergency fund is not a one-and-done event. You'll need to periodically evaluate how much you need — and make changes accordingly. Here are four things to consider when reevaluating the size of your emergency fund.

Any time your life circumstances change, you should reevaluate how much you need in your emergency fund. That's because such changes can make your monthly expenses change as well. Have you bought a house or a new car? Have you had a child? Has your kid started private school?

Even without a change in circumstances, rising inflation can easily cause your monthly expenses to surge. How much are you currently spending on necessities like food, rent, or health insurance?

Keep in mind that even if you can afford it, you don't want your emergency fund to be too big. It should be enough to float you through tough times, but not so large that you neglect other important financial goals such as paying down debt or saving for retirement.

Remember, if you need some guidance regarding how much, exactly, you should have saved based on your expenses and lifestyle, it never hurts to get a professional opinion.