
Emergencies happen. It’s never a question of “if” one is coming your way, it’s only a matter of “when” the emergency is coming your way. Your job is to be as prepared as possible for that emergency, including being financially prepared. So, what does being financially prepared actually mean? How much of an emergency savings account do you really need?
After careful consideration and research, the answer to that question is… it depends. On a LOT of things. But by the end of this post, you’ll have a better idea of how much money you need, ways to get that emergency money set aside, when to get it saved up, and once you have it accumulated what to do with the savings account.
Startling Statistics
Over the last few years, I’ve watched several family members walk through crisis after crisis. And it truly has given me a front-row seat of what a situation looks like if you are financially prepared for an emergency and have some money set aside; and what life could look like if you have not saved for the unpredictable surprises.
According to CNBC, only 4 out of 10 American families have enough savings to cover $1,000 emergency. That means 6 out of 10 do NOT. 60% of people in the United States are walking around totally unprepared for a financial emergency. Not even a huge emergency! A simple $1,000 one! That’s unbelievable to me. I can’t imagine the kind of stress that comes with that!
If I teach you nothing else today, take this point with you. You cannot start planning for a financial crisis after it starts. Your job is to prepare accordingly for the potential crisis well before it begins.
How much money do you need?
So, let’s talk numbers.
At a minimum, I’m hoping you have at least $2,000 in a savings account. $5,000 would be even better. And really, in a true financial emergency, that’s not going to get you very far. But it’s certainly better than nothing. If you don’t yet have this small amount saved up, don’t panic. But it is time to take action. Start with reading my post about assets in your own home for some ideas on how to get some money in the bank really quickly.
Having a little bit in the bank is certainly better than nothing at all. But the goal I would really suggest is 3-6 months of living expenses saved up and set aside in a separate savings account. That you don’t touch. Ever. I checked a ton of different financial advice websites and that amount seems to be the generally accepted suggestion.

What to Include in Your Calculations:
Now, I realize 3-6 months of living expenses is a lot of money. And when you are calculating how much this needs to be, keep in mind it’s a bare bones budget. You don’t need to save up for six months of keeping up with luxuries and comforts.
Wipe out any and all unnecessary expenses from your calculations, like Starbucks, restaurants and bars, cable, going to the movies, clothing
Factors to Consider
When you are deciding how many months of expenses to bank, keep a few more factors in mind. What do you and/or your spouse do for a living? How easy is it to find a job in those fields? If you are a general accounting person or a nurse, you may find a job more quickly if needed. If you are extremely specialized in your field, it might take a while longer to find a job. If you had to relocate for a job, how hard would it be to sell your home? How long might you have to carry the mortgage before it sells?
You should also consider how dangerous your job is. What is the likelihood of injury? If you juggle with statistics all day, you may die of boredom, but otherwise, you’re pretty darn safe at work. On the other hand, if you train tigers in your spare time while you aren’t at your regular job welding iron with an industrial blowtorch whilst strapped to scaffolding on high-rise buildings, then you might want to put back a little more in the emergency account. Your likelihood of injury is way more than mine, sitting in an office compiling financial statements.

Emergency Qualifications
So, what counts as a true emergency?
Job Loss
If they day comes that you lose your job, hopefully you get a severance package or can file for unemployment benefits. But most likely, those aren’t going to cover you for very much and probably not for very long. Having money set aside to cover your monthly expenses gives you the breathing room you need to focus on what you REALLY need to focus on, which is getting your next job!
Heath Emergencies
You never know when you could have some kind of accident that requires an emergency room visit or even would cause you to miss work for a few weeks. Or (God, Forbid) you find out that you are sick and are going to need a long course of treatment. Not only will you be racking up health expenses, you could be missing work too. Having your emergency fund in place will help you focus on getting your health back on track.
House and Property Emergencies
Ideally, after you have an emergency account in place, you would have another account/stash of money set aside for irregular but predictable expenses. Car repairs, home repairs and home upgrades. It’s for sure, one day you will have to put a new roof on your house. Eventually you will need replacement windows or a new HVAC unit. Your home appliances will not work forever. The car is not going to run forever.
And while it’s good to have a fund set aside for predictable (yet irregular) expenses too, I’ve found that sometimes those events just don’t happen when you are ready and have already saved up for them. The will happen when it’s 100 degrees outside and the A/C stops working. We live in Tennessee, summer is NOT the time to have busted air conditioning. Or when a monsoon of rain just put a tree through your roof, that’s not the time to wait and save up to fix your roof. You need it fixed right then. And an emergency account will facilitate that.
What is NOT an Emergency:
Did you notice that on that list of emergencies I just listed, none of them were pizzas, pedicures or clothes? This emergency fund is strictly for emergencies. Not for if you are having a bad day and need a pick-me-up present for yourself.
Debt Payoff vs Emergency Savings
So, what’s more important? Getting out of debt or saving for an emergency?
There are many schools of thought on which comes first; saving for an emergency account or getting out of debt. Dave Ramsey teaches that you should have $1,000 set aside in an emergency account, then proceed to get out of debt, and THEN build up your 3-6-month emergency account. That is definitely one way to do it, and it’s been successful for tens of thousands of people that follow his plan. However, at my house, if we personally only had $1,000 in savings I’d be ready to vomit from stress all the time. I can’t operate out of that kind of fear.
Others will be more comfortable saving up their entire emergency account and then starting on their debt. Of course, this could take a while longer, since you’ll have less money to put towards the savings account each month due to those debt payments.
So, in short, the answer is, you have to do what seems right for you and find your personal tolerance for the discomfort. Maybe for you, that means saving up $5,000, then attacking your debt, and then finishing up your emergency account. Do it however you are comfortable doing it, all that matters is that you ARE working towards your emergency savings.
If It Were Me…
If it were me, I would crack my budget for every spare penny I could, get my emergency account to a number I am somewhat comfortable with, say $10,000. I’d then look at paying off my debt and get that knocked out. THEN, I’d finish up my emergency account. It would be a lot easier and much quicker to finish saving up your big emergency account when you don’t have debt payments holding you back. But for my peace of mind, I’d have to have a pretty good baseline emergency account first.
Whatever you decide, it’s totally up to you. But make a plan and stick with it and get to work on it. I would definitely caution, don’t try to save for an emergency fund AND get out of debt at the same time. That’s like digging a massive hole with two spoons. Trade in those two spoons for one really big shovel, and dig that hole like you mean it. Just do what feels right for you and your family.

How do I find the money to save?
Now the real fun begins. Once you know what your plan of attack for savings will be, now it’s time to get to work figuring out how you are going to get there. The nerdy finance major in me loves this stuff!
Look At Your Monthly Budget
There are lots of places in your monthly budget where you can easily save some money each month. If you need some help getting started, check out this post on How to Save $615 This Month Without Even Noticing. Get creative on cutting your expenses and trim the budget a little. I think you could be really surprised how far that will get you towards your savings golas.
Earn Extra Money
If cutting the budget just won’t get you to your goals as quickly as you would like, look at part-time side jobs. Is there something you can do from home to help supplement the savings? Depending on the age of your kids and your availability, there are tons of work from home positions online like a virtual assistant, help desks or even some jobs where you take calls for customer service. Offer up childcare for neighbors and friends. All done from home.
I have a friend that buys old furniture at yard sales, fixes it up and repaints it into something gorgeous and then re-sells it for a much higher price. If you are creative and crafty you could open an ETSY store and sell your crafts online.
These are just a few ideas on how to get some extra income coming in to help build up that emergency fund. Get crafty and scrappy and see just how far you can get towards your end goal!
Once I have the Money, Where should I put it?
I’d suggest keeping your emergency account in a plain old savings account. It’s best if it isn’t linked to your checking account, perhaps not even at the same bank as your checking account. That way, it’s not easy to transfer money from the emergency savings account to cover your checking account when it gets low from everyday life expenses. You aren’t going to make a lot of interest on this money, and that’s just fine. This isn’t an investment account. This is an account that lets you get your money quickly, if needed.
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Recommended Financial Resources:
- The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
- Money Honey: A Simple 7-Step Guide For Getting Your Financial $hit Together
- Women & Money (Revised and Updated)
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
To Wrap Things Up
Being prepared doesn’t mean watching the weather forecast to see if it might rain. What being prepared means is knowing it WILL eventually rain and having rain boots, a
Related Posts:
- Save $615 This Month Without Even Noticing
- 9 Calls to Make Immediately During a Personal Financial Emergency
- There’s $2,500 Hidden In Your House
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