Saving for Emergencies | Student Money Management Office (2024)

FAQs

How much money should you save for emergencies responses? ›

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.

The Bottom Line. Ramsey's suggestion to start with $1,000 in an emergency fund is as timely as ever, as it's a good way to avoid taking on debt to pay for small financial emergencies.

The amount you need to have in an emergency savings fund depends on your situation. Think about the most common kind of unexpected expenses you've had in the past and how much they cost. This may help you set a goal for how much you want to have set aside.

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.

While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses. That doesn't mean 3 to 6 months of your salary, but how much it would cost you to get by for that length of time.

Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.

“Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.” Just look at the story of former custodian Ronald Read for a perfect example.

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.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How much emergency fund is enough? ›

The general rule is to save at least three to six months' worth of expenses for your emergency fund. This is just a guide amount and a good starting point for most individuals.

The best place to keep your emergency fund is in a high-yield savings account, which offers easy access and pays a competitive yield. Look for banks and credit unions that insure deposits through the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA).

You've probably heard it before: “three to six months' of expenses in an emergency fund.” This, in the opinion of Orman, is simply not enough. “Every family should have an emergency savings account that can cover at least eight months of living expenses,” Orman wrote in a post on Oprah.com.

Some folks will need $10 million to have the kind of retirement lifestyle they've always dreamed about. Others can comfortably live out their golden years with a $1 million nest egg. There's no right or wrong answer here—it all depends on how you want to live in retirement!

The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.

Multiply that daily amount by the number of days you want to plan for. For example, if you estimate $30 would be the minimum amount of money you would need, and you think five days is the right amount to plan for, you would have a comfortable baseline of $150 for your emergency preparedness reserve.

Start by saving $1,000, then aim to save 3 to 6 months' worth of essential expenses by funding your emergency savings, as you would for a bill. Try to save in an account that pays some interest but preserves liquidity. As a last resort, credit could be used to cover an emergency, ideally with a low interest rate.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.