How much money should be in my emergency fund?

Piggy Bank


When I was a younger man just starting a life on my own, there were times when I found myself short on cash. Little emergencies like car repairs or medical bills became highly stressful because I was financially undisciplined and unprepared. 

As I looked to improve this area of my life, I established an emergency fund to better deal with life’s inevitable problems. As my fund grew, not only did my financial emergencies start to disappear, but the stress and worry of life also seemed to disappear.  

Reflecting on the most critical actions I took in my quest for financial independence, starting an emergency fund ranks at or near the top.

So, read on if you are starting your journey toward financial stability or want to avoid a future stressful financial situation, like a Tech layoff or unexpected medical bill. In this post, I’ll answer how much cash you should save in your emergency fund and offer tips on achieving that goal. 

Stressed over money
Create an emergency fund to reduce stress and worry.

How much money should be in my emergency fund?

If you are starting your journey toward financial stability, then $1,000 should be your emergency fund target. This amount provides a meaningful goal that is achievable by anyone over time. However, your journey continues beyond this milestone. Once you have saved $ 1,000, your next target is three months of living expenses. This amount will give you a longer-term safety net for the unexpected. Finally, your ultimate goal should be twelve months of living expenses. This level of emergency savings will allow you to weather even the roughest financial storms. The most significant benefit of tying your emergency fund to your monthly spending is that the required balance grows in proportion to your expenses. Your emergency fund will keep pace as you become more wealthy and take on a higher standard of living.

How to create an emergency fund?

With a defined goal and a disciplined approach, building an emergency fund is relatively easy. The most critical steps include:

1. Set a Specific Goal

Having a clear and specific savings goal is the cornerstone of building a robust emergency fund. Further, writing down your goal keeps you focused and motivated and, more importantly, increases your chance of success:

  • Start by setting your initial target at $1,000. This amount will give you an achievable target and allow for some quick success. Also, $1,000 will be sufficient to cover a variety of emergencies. 
  • Next, you must raise the stakes for your mid-term goal, aiming for three months of living expenses. This amount will cover you against unexpected costs like medical emergencies or car repairs. 
  • Finally, your long-term goal is six, then twelve months of living expenses. This amount provides a substantial financial cushion in case of prolonged job loss or a significant life disruption.

2. Open a Dedicated Bank Account

To ensure your emergency fund remains untouched for its intended purpose, open a dedicated savings account solely for this fund: 

  • This step is critical as it separates your emergency fund from your regular checking or savings accounts. 
  • This separation reduces the temptation to dip into these funds for non-emergencies. 
  • Second, a dedicated account makes tracking your progress toward your financial goals much more straightforward.
  • Finally, many banks offer higher-yield savings accounts ideal for emergency funds.  

3. Automate the Process

Automating your savings is an essential strategy to consistently build your emergency fund: 

  • Set up automatic transfers from your primary checking account to your dedicated emergency fund account.
  • Align these transfers with your pay dates to make the process seamless and hassle-free.
  • Alternatively, as many employers provide free payroll direct deposits, you can deposit a portion of your paycheck directly into your emergency fund
  • Automating the process ensures that you consistently allocate a portion of your income to your emergency fund without manual intervention. This approach cultivates financial discipline and guarantees you’re steadily progressing toward your goal.

4. Track Your Progress

Regularly monitoring your progress is crucial to achieving your emergency fund goal. 

  • Review your bank account balance monthly to ensure your progress. 
  • If you have automated the process, you should see your account grow quickly.
  • Knowing where you stand will help you clearly understand how close you are to reaching your goal
  • Further, seeing your account grow will provide additional motivation to stick to your goal and even take action to speed up the process.

5. Cut Unnecessary Expenses

Identify non-essential expenses you can reduce or eliminate to speed up the process. 

  • Cutting back on activities like dining out, entertainment, or subscriptions can free up additional funds for your savings
  • Review your spending habits monthly to look for opportunities to reduce unnecessary costs.
  • Direct every dollar saved toward your emergency fund with little to no impact on your standard of living.
  •  Actions like packing your lunch, making your coffee at home, or eating out one less time a month contribute significantly to your fund over time. 

6. Review & Adjust

You will reach your goals in time, but ensure you always have an appropriate emergency fund strategy as your financial situation evolves. As you grow more wealthy, you must adjust your emergency fund to align with your living expenses. Once you achieve your long-term goal: 

  • Review your savings goals annually and make changes as needed. 
  • If your living expenses increase, increase your emergency fund balance to stay on target. 
  • Remember, emergencies happen, so don’t hesitate to use your emergency fund when needed. However, it’s best to set strict parameters on what you define as an emergency.
  • If an emergency forces you to dip into your account, replenish your fund as quickly as possible using the steps described above.
  • Reviewing your goals ensures that your emergency fund aligns with your current financial situation. This adaptability is critical to your long-term financial success.
Money Bowl
Emergency Fund Success

Helpful Tools for Creating an Emergency Fund:

You can leverage several tools and services to make this process easier as you strive toward your goal. Consider the following:

High-Yield Savings Account

A high-yield savings account is a smart choice for your emergency fund to maximize the return on your cash. Here is how to choose the best account:

  • Choose an account that maximizes the return on your emergency cash. Look for an account that provides higher interest rates than traditional savings accounts, especially considering the sizeable amount of cash you will hold.
  • Use an account that has zero or low minimum balance requirements. There is no need to pay for someone to hold your money.
  • Finally, make sure the account has convenient online access. The last problem you need in an emergency is figuring out how to access your funds.
  • I have placed my emergency savings in 13-week treasuries that I have structured to mature every month. This strategy allows me a safe place to hold my money while receiving a return greater than 5% annually.

Budgeting Tools

Use Quicken, Mint, YNAB (You Need A Budget), or Empower (formerly Personal Capital) to track expenses, set savings goals, and monitor progress. The benefits of these tools include:

  • Tracking of all transactions, including income and expenses
  • Tracking of credit card, mortgage, and other debts
  • The ability to create a spending plan geared to help meet your emergency fund goals
  • Real-time visibility and analytics around your spending habits
  • The ability to identify areas where you can make adjustments to accelerate your savings, ensuring you stay on course.
  • I currently use MS Excel to track my finances, but I am considering a dedicated tool like Quicken to make the process more efficient.

Automatic Transfer Services

Automatic transfer services, such as Qapital or Chime, help automate building your emergency fund. These services transfer money from your checking account to your dedicated emergency fund based on your established parameters. Consider the following benefits:

  • The value of these services is in the consistency and discipline they bring to the process. Automation removes the element of procrastination or inaction. 
  • You can set up recurring transfers that align with your paydays, ensuring you always have the required funds available without manual intervention. 
  • Automation simplifies the process and maintains steady progress toward your goal. 
  • Also, there are other options available. I use a free recurring interbank transfer and a direct deposit into my emergency fund account. 


Now that you know how much should be in your emergency fund, you can confidently take action. 

Set a clear goal and automate the process of saving into your dedicated account. Remember to optimize your expenses to increase savings, track your progress, and monitor your success. 

An emergency fund is vital to achieving financial security and peace of mind, allowing you to face life’s uncertainties confidently.

In the meantime, stay tuned for expert advice on health, wealth, and wisdom to guide you through life’s challenges and opportunities.

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