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
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.
Is $20,000 too much for an emergency fund? ›
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.
What would be at least one good reason why you would use your emergency fund? ›
An emergency fund is a bank account with money set aside to pay for large, unexpected expenses, such as: Unforeseen medical expenses. Home-appliance repair or replacement. Major car fixes.
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 the best reason why you should not have your emergency fund in your checking account? ›
Checking account
Keeping your emergency fund in the same account as the funds you use for everyday finances is a bad idea for two reasons: It's too accessible, and you aren't tapping into the interest-earning potential other accounts offer.
What is a realistic emergency fund amount? ›
To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses. So if you spend $5,000 per month, your first emergency fund savings milestone should be $2,500 to cover spending shocks.
Is 20k a lot of money in savings? ›
The recommended amount to save varies from person to person, as everyone's financial situation differs. But for many people, $20,000 is a sizable emergency fund goal that will go far. If you have a large chunk of savings set aside, make sure you keep it in a bank account that earns interest.
What not to use an emergency fund for? ›
Your emergency fund allows you to pay for something you need right away without paying extra in interest charges. DON'T include money you're using for a vacation in your emergency fund. This is strictly for unexpected necessities.
What is an example of an unexpected expense? ›
Unexpected expenses can include: Household Expenses: Plumbing or Electrical Emergencies. Appliance Repair or Replacement.
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.
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.
How much does an average American have in a checking account? ›
Average checking account balance by ethnicity
| Ethnicity | Account balance |
|---|
| Hispanic | $3,902 |
| Asian | $28,255 |
| Other | $10,092 |
| National average | $8,814 |
2 more rowsApr 26, 2024
In 2022, the average savings account balance in the United States was $62,410, while the median balance was only $8,000. The average and median balances vary depending on age, with older generations having more savings.
What is the most common mistake made with emergency funds? ›
Mistake #1: You haven't saved enough
Remember, you don't need three to six months of all your expenses, just “must-haves” such as your mortgage or rent, utilities, taxes, and insurance bills.
Is 25k a good emergency fund? ›
Someone with minimal expenses will need to save less, while someone with more costly expenses should save more to prepare. Let's imagine you need $2,000 a month to cover your living expenses. With this number in mind, $25,000 would be more than enough to cover an entire year of expenses.
What are some reasons for having an emergency fund? ›
An emergency fund is a cash reserve that's specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.
Is 30k too much for 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 $15000 a good emergency fund? ›
Standard advice suggests saving three to six months' worth of expenses as your emergency fund to prepare for any potential drop or loss of income. If you have $3,000 of expenses made up of rent or mortgage and food, for example, then you would save between $9,000 and $15,000 in your emergency account.
How much should a 20 year old have in emergency fund? ›
Rule of thumb? 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.
