How Much Emergency Fund Should I Have? Tips and Advice

Dawn Papandrea
Natalie Taylor, CFP®, BFA™
How Much Emergency Fund Should I Have? Tips and Advice

Financial setbacks like unexpected expenses or a loss of income are much easier to deal with when you have an ample emergency fund. In fact, preparing for life’s inevitable twists and turns before they happen is one of the best gifts you can give to yourself and your family.

Not only does having a safety net protect your financial future, but it cuts down on money stress, which can benefit your mental and physical health as well.

The big question you may be wondering is: How large of an emergency fund should I have? And how many months should an emergency fund cover? Should I have three months of income set aside? Six months? Or, is it better to aim for a set amount like $20,000 or $40,000?

Even if you’re starting from zero, once you put a plan in action and start contributing, you’ll immediately be in a better financial position. And as you build on that foundation, you’ll become more and more secure as time goes on.

Read on to learn why an emergency fund is so crucial for a healthy financial outlook, how to determine how much you should have in an emergency fund, and how to set it up and move toward fully funding it. 

What Is an Emergency Fund?

An emergency fund — sometimes referred to as emergency savings or an emergency cash fund — is a savings account that you keep for unplanned expenses or for times when you have limited or no income. It’s there for things like unexpected home or car repairs, unexpected medical bills, or temporary income loss.

How an Emergency Fund Can Change Your Life

Having an emergency fund can literally change your entire financial outlook, help you avoid going into debt, allow you to work toward other life goals, and open up other wealth-building opportunities. Consider some of these statistics:

  • 35% of unemployed people take 15 weeks or more to find a new position (as of January 2023), according to the Bureau of Labor Statistics

  • One-third of homeowners spent more than $5,000 on maintenance costs in 2021, according to research by Clever.

Prolonged loss of income, unexpected home expenses — for each of these real-world scenarios, having a strong emergency fund could save the day.

Without a financial safety net, you might fall behind on debt payments which can hurt your credit score for years to come and run up credit card debt which can be challenging to pay off and slow your progress towards other goals. 

How Much to Save in Your Emergency Fund

There are many schools of thought for how much to save in your household emergency fund, but most experts recommend three to six months of expenses or income.

Base Your Emergency Fund on Take-Home Pay

We recommend basing your emergency fund on take-home pay rather than expenses. So, if you bring in $12,000 per month (after taxes), then that’s the base amount you’ll work with.

Here’s why: The majority of people spend most of their income. In fact, as of January 2023, the average U.S. personal savings rate — the percentage of disposable income after expenses and spending — was just 4.3%.

And while you may be thinking that if you lose your job, you can just buckle down and cut expenses, that won’t typically be enough — especially if you’re already on a tight budget. Therefore, using income replacement to determine your target emergency fund amount is a more conservative and realistic approach. 

Pro Tip: If your monthly spending is less than 80% of your take-home pay, base your emergency fund goal on your monthly expenses instead.

Calculate Your Fund Size

Next, figure out how many months of take-home pay you should save to build a fully-funded emergency fund. Coming up with the right number will depend on several factors: 

  • Whether you have dependents. If you have kids or aging parents who rely on your income, you’ll need to save more than a single person or a couple who doesn’t have children.

  • Whether you own a home. Homeowners are more likely to face unexpected costs to maintain their homes — a factor renters don’t have to worry about.

  • How consistent your income is. If you’re basing your emergency fund on how much you earn, but your income fluctuates, you’ll want to save more aggressively in case you end up with a few lean months in a row.

  • How close you are to retirement. Bulk up your emergency fund if you’ll be living on a fixed income within a few years.

Read on to find out how much to save in your Emergency Fund based on the factors above.

How to Build an Emergency Fund

The best way to build an emergency fund is to open a high yield savings account and set up automated deposits from every paycheck. To fast-track your goal, you can also contribute lump sums of cash from windfalls like gifts, bonuses, and tax refunds, or by taking on a side hustle to earn extra income.

Step 1: Determine Your Fully-Funded Emergency Fund Size

So how much money should you have in your emergency fund? Your ultimate emergency fund goal depends on a few variables. Here’s a good rule of thumb to help you choose your minimum emergency fund amount:

  • If you don’t have any dependents and you don’t own a home, save at least three months of take-home pay 

  • If you have dependents and/or own a home, save at least six months of take-home pay

  • If you’re self-employed or have inconsistent monthly income, save nine months of take-home pay

  • If you’re within five years of retirement, save 12 months of take-home pay

Step 2: Reach Your First Milestone

If you’re starting from scratch and you earn $10,000 per month, it can be overwhelming to think about trying to save $60,000 (six months of pay). Instead, start by aiming for an initial milestone of just one month’s income.

Until that first goal is achieved, make this the primary focus of any dollars you have available.

Pro Tip: Once you have at least one month of savings in your fund, you’ll greatly reduce the likelihood of increasing your debt. A fully funded emergency fund will protect you in case of a prolonged job loss or other major issues. But the first milestone helps prevent minor issues like a flat tire or a busted AC unit from getting you into debt.

Step 3: Continue Your Progress

After you reach that first threshold of one month of take-home pay, congratulate yourself, and keep the momentum going! You’ve already built a nice financial cushion to cover most minor emergencies. Now you can simultaneously begin working on other high-priority goals. These might include paying off debt over 7% and contributing enough to your retirement account to get your employer match.

Step 4: Create a Budget and Savings Plan

Unfortunately, 36% of Americans have more credit card debt than emergency savings, according to Bankrate’s Annual Emergency Fund Report. This represents the highest percentage of unprepared Americans in the last 12 years.

To avoid this imbalance, establish a reasonable budget to help you focus on spending less than you earn so that you can avoid accruing credit card debt and add to your savings.

A budget requires you to do a deep dive into all your fixed, flexible, and non-monthly expenses. Once you do, you’ll know exactly where your hard-earned dollars are going. Then you can make adjustments and figure out a plan to help you free up more disposable income for your goals — and the top one is your emergency fund.

Pro Tip: Putting your money in the right place is as important as knowing how much emergency fund you should have. A high-yield savings account is generally your best bet.

Step 5: Set Up the Right Kind of Emergency Fund Account

A good emergency fund should always be in a separate account, and ideally, one that isn’t super accessible so you’re not tempted to use it unless you really need it. Even better is to use a savings account that earns interest on top of your contributions, to help you reach your goal faster. 

For most people, the best place for an emergency fund is an online high-yield savings account, which pays higher interest on savings than traditional brick-and-mortar banks do. Once it’s open, you just have to link it to your checking account and set up automatic transfers for every payday to keep your saving goals on track. 

There are other options for earning interest on your savings as well, but keep in mind that ensuring your emergency fund is protected from losses and available if and when you need it are the most important considerations. Options to earn additional interest on your savings include:

Investment Type

What It Is



Money market funds

A type of mutual fund that invests in short term bonds and cash equivalents

Easy access to funds

Yields adjust regularly which can mean more yield as rates rise

Small amount of investment risk

Yields vary daily and can go down if rates decline

not FDIC-insured

Treasury bills

Treasury bills (T-bills) are backed by the federal government and mature in under a year. 

Very low-risk investment (backed by the federal government)

Known interest rate locked in

Selling a T-bill before maturity could result in a loss of principal, especially when interest rates rise


Earn a fixed interest rate over a set period of time

Known interest rate locked in 

FDIC insured

Money is tied up for the CD term or you’ll pay a penalty

Series I Bonds

Bond issued by the federal government with an Interest rate based on the inflation rate

Very low risk investment (backed by the federal government)

During times of high inflation, interest rates can be very attractive

Interest rate locked in every six months

Illiquid for the first year; if withdrawn within five years, you will lose three months’ interest

Start Working on Your Financial Safety Net Today

The best way to prepare for financial emergencies is to turn them into non-emergencies by having a fully-funded emergency fund. The amount you need depends on your household income and circumstances. Reaching that initial emergency fund of one month’s take-home pay sets the foundation for a secure financial future. It also frees you up to work on other important goals that can get you one step closer to financial freedom.

Finding cash to build your emergency fund starts with building a budget. Intuitive software like Monarch Money can help you track your spending and identify ways to save. 

Dawn Papandrea Personal Finance Writer
Natalie Taylor, CFP®, BFA™ Head of Financial Advice at Monarch

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