It's important to have money in savings for unexpected bills and financial emergencies. You never know when you might need to spend money on a home repair, or when you might lose your job through no fault of your own. Having a solid emergency fund could make it so you don't instantly need to reach for a credit card -- and rack up a costly balance -- when life doesn't go your way.
As a general rule, it's a good idea to have enough money in an emergency fund to cover three full months of essential bills. If you're able to save beyond that point, even better. But seeing as how 63% of Americans don't have enough money in savings to cover an unplanned $500 expense, according to a recent SecureSave survey, even hitting the three-month mark may be a stretch for a lot of people.
Meanwhile, you might have a fairly large savings balance to the tune of $20,000. That's definitely a lot of money. And in some cases, that might constitute a really robust emergency fund. But in some situations, a $20,000 emergency fund might also leave you short.
Why $20,000 in savings may not be enough
Considering that so many people don't even have $500 in savings, you may be wondering how it can be that a $20,000 emergency fund isn't adequate. The answer is that it may be more than adequate for you. But it's not necessarily adequate for everyone.
When calculating what you need to have in emergency savings, it's important to add up your personal expenses. And if you happen to spend a lot of money on living costs, it's possible that a $20,000 savings balance wouldn't suffice in sustaining you for three months without a paycheck.
Let's say your essential spending reads as follows:
- $3,000 a month on housing, including your mortgage payment, property taxes, and insurance
- $1,000 on car payments and auto insurance
- $800 on groceries
- $200 on medication
- $600 on utilities
- $200 on cellphone service
- $1,200 a month on childcare
All told, you're spending $7,000 a month on essentials. A $20,000 emergency fund might cover close to three months of bills, but you might come up a little short.
On the other hand, let's imagine your personal spending on essentials amounts to half of that amount each month, or $3,500. In that case, you're in excellent shape with a $20,000 emergency fund.
It's all about you
One mistake people tend to make when saving for emergencies is landing on a random number and assuming it'll work for them. It's easy to see why you'd think a $20,000 emergency fund would be more than adequate. But if your expenses are higher than average, that may not cut it.
So spend a few minutes adding up your essential bills to see what your personal spending amounts to monthly. And then multiply that by three to get your minimum emergency savings target. It's really that simple.
Of course, you may find that you have nowhere close to three months' worth of bills in savings, and that's not necessarily something to panic over, either. Building that safety net can take a lot of time.
But if you see that you have work to do, make a plan. Set up an automatic transfer to send an extra $100 a month into your savings from this point forward, or an extra $50 or $20 if that's what you can swing. The key is to know what to aim for and do your best to get there.
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FAQs
And if you happen to spend a lot of money on living costs, it's possible that a $20,000 savings balance wouldn't suffice in sustaining you for three months without a paycheck. Let's say your essential spending reads as follows: $3,000 a month on housing, including your mortgage payment, property taxes, and insurance.
Is $20,000 too much for an emergency fund? ›
While $20,000 may be more than what many Americans have in savings, it's not guaranteed to be an adequate emergency fund for you. Your emergency fund should be set up to cover at least three full months of essential bills. If your monthly expenses are high, you may need to save more than $20,000.
What percentage of Americans have a $1000 emergency fund? ›
Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate's survey of more than 1,000 respondents conducted in December. That is up from 43% in 2023, yet level when compared to 2022.
What is a realistic emergency fund amount? ›
While experts generally recommend building an emergency fund equal to three to six months' worth of expenses, this is only a guideline. Calculating your personal emergency savings goal requires having a clear picture of your financial situation.
Is a $5,000 emergency fund enough? ›
Saving $5,000 in an emergency fund can be enough for some people, but it is unlikely sufficient for a family. The amount you need in your emergency fund depends on your unique financial situation.
Is $30,000 a good emergency fund? ›
Most of us have seen the guideline: You should have three to six months of living expenses saved up in an emergency fund. For the average American household, that's $15,000 to $30,0001 stashed in an easily accessible account.
Is 20K a lot of money in savings? ›
While $20K may not let you quit your job, it's enough to start building financial security, whether you max out your retirement accounts, invest in fine art, or divide your cash between multiple investments.
How many Americans have $10,000 in savings? ›
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
Average checking account balance by income level
| Income percentage | Account balance |
|---|
| 60-79.9% | $7,924 |
| 80-89.9% | $13,434 |
| 90-100% | $43,631 |
| National average | $8,814 |
3 more rowsApr 26, 2024
As of May 2023, more than 1 in 5 Americans have no emergency savings. Nearly one in three (30 percent) people in 2023 had some emergency savings, but not enough to cover three months of expenses. This is up from 27 percent of people in 2022. Note: Not all percentages total 100 due to rounding.
How Much You Should Have in Your Emergency Savings. Here's a Dave Ramsey principle we agree with: If you make less than $20,000 per year, aim to have at least $500 in emergency savings. If you make more than $20,000, then aim for at least $1,000.
Is $10,000 too much for an emergency fund? ›
When asked how much money they'd need to save for a financial emergency to avoid additional stress, 40% would feel comfortable having a modest amount — below $2,500 — set aside. 21% say they'd need at least $10,000 saved to feel secure.
How much cash should you keep at home? ›
In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses. Everything starts with your budget. If you don't budget correctly, you don't know how much you need to keep in your bank account.
How many Americans have 100k in savings? ›
14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
Is $100 K too much for an emergency fund? ›
It's important to have cash reserves available, but $100,000 may be overdoing it. It's important to have money available in your savings account to cover unforeseen expenses. Plus, you never know when you might lose your job or see your hours (and income) get cut, so having cash reserves at the ready is important.
How much should a 20 year old have in emergency fund? ›
Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
How much should a 30 year old have saved? ›
If you're looking for a ballpark figure, Taylor Kovar, certified financial planner and CEO of Kovar Wealth Management says, “By age 30, a good rule of thumb is to aim to have saved the equivalent of your annual salary.
Is it better to have an emergency fund or pay off debt? ›
“Every single day your high-interest debt goes unpaid, it's costing you money — a LOT of money — in interest,” Krawcheck says. Instead of putting your extra cash toward an emergency fund, she suggests that focusing all of it on credit card debt first will save you more in the long run.
Is 10k emergency savings enough? ›
Those include things like rent or mortgage payments, utilities, healthcare expenses, and food. If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance.
