Last year, SecureSave reported that 63% of Americans did not have enough money in a savings account to cover an unplanned $500 emergency expense. So if you're sitting on a $20,000 emergency fund, you're clearly in a much more solid place.
But believe it or not, just because you have $20,000 to your name doesn't mean your emergency fund is automatically complete. Perhaps you still have work to do on the savings front.
It's a matter of your personal expenses
There are two purposes to having an emergency fund -- to give you money to access when unplanned bills pop up, and to get you through a period of unemployment. It's for the latter reason especially that workers are generally advised to save enough in an emergency fund to cover three to six months of essential expenses. The logic is that it might take that long to find a job after losing one, so having that level of savings could make it possible to avoid credit card debt while unemployed.
Now whether you opt to aim for a three-month emergency fund or a six-month fund (or more) will depend on your personal circ*mstances and how much financial peace of mind you require. But three months' worth of bills in savings should really be your minimum goal.
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With that in mind, whether you're all set with a $20,000 emergency fund will really depend on what your monthly expenses look like. If your essential bills come to $6,667 a month or less, then you may be well-protected with $20,000 in the bank.
But if you're a higher earner who spends $8,000 a month on essential expenses, then your minimum emergency fund target should really be $24,000. And if your monthly spending comes to $10,000, then you should really be aiming for $30,000 in your emergency fund.
RELATED: Emergency Fund Calculator
Higher earners might want more
If you're a higher earner, you may want to amass enough savings to cover six months' worth of expenses instead of just three. Why so? Upper-level jobs that are lost can sometimes be harder to replace than lower- or mid-level jobs, since there tend to be fewer of them.
Imagine you're an IT professional on a team of 20 earning $80,000 a year. If you were to get laid off, chances are, you'd find a comparable job with a similar salary in a few months' time. But if you're the VP of Technology at your company and you earn $240,000 a year, there may not be as many openings for that same role at different firms. So for that reason, when you're a higher-paid professional in more of a specialty role, it often pays to have extra savings, just in case.
Focus on your expenses, not just a single number
For some people, a $1 million nest egg could make for a very comfortable retirement. For others, a sum of that nature might fall short.
Similarly, for many working Americans, a $20,000 emergency fund will indeed be more than adequate. But if you're a higher earner with large bills, you may be an exception to that rule.
So rather than focus on a single number in the context of planning out your emergency fund, instead, run the numbers to see what you actually spend on a monthly basis. And then figure out how many months of income it pays for you to replace.
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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.
What is considered a full emergency fund? ›
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.
How much money should you have in your emergency reserve fund? ›
An emergency fund can serve as your personal safety net during periods of financial stress. While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses.
Does the average person have an emergency fund? ›
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.
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 $20000 enough 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 is the golden rule of emergency fund? ›
How much should you have in your emergency fund? The golden rule is to squirrel away at least three to six months of your basic living expenses for an emergency. That way, should a major life-shifting event set you back financially, such as a job loss, you'll have enough to cover your bills.
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
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 many Americans have no savings? ›
Do You? 20% of adults ages 50+ have no retirement savings, 61% worry they won't have enough at retirement, as per new AARP survey.
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.
Is $20,000 a good amount of savings? ›
All in all, depositing $20,000 in a savings account can be wise if you have a short-term plan for the money. Your deposit will be safe and you can generate decent amounts of interest in the meantime.
Is $10,000 too much for an emergency fund? ›
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.
How much is a fully funded emergency fund? ›
Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000. This might not seem like a lot, but it's just a temporary buffer while you pay off that debt. Fully funded emergency fund: Once that debt's gone, you need a fully funded emergency fund of 3–6 months of expenses.
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 $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.
Is $10,000 a good 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.
