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What is an emergency savings and how much do you need?

Because we all need a fund for when sh*t hits the fan.

If you want to get a good grasp on what an emergency savings is and why you need one, it’s first important to understand what constitutes an emergency and what doesn’t.

An emergency may look like:

  • Unexpected medical bills from an accident or illness

  • Repair to any essential system in your home (i.e., plumbing, HVAC, electrical)

  • Losing your primary income (unemployment)

  • Repair to your vehicle if it is your only mode of transportation and going without affects your ability to earn money

  • Debt payments

Any expense that will affect your ability to sustain your basic living needs that if not paid will cause you to go into debt is an emergency. 

An emergency does NOT look like:

  • That new designer bag you just had to have because it was on super sale

  • Your entertainment subscriptions (Hulu, Netflix, Spotify, etc.)

  • The new fancy phone that replaced your two-year-old phone that was actually working just fine

Any expense that is a “want” and not a necessity is not an emergency expense. If the expense doesn’t affect your basic ability to live, then it’s not a necessity. 

Now that we’ve got that covered, let’s talk about what an emergency savings really is: your “when-sh*t-hits-the-fan” fund.

It happens to the best of us. Sometimes life just throws you curve-balls, but your emergency savings balance is there for you to tap into when you need it.

So, how much do you need?

Well, it depends on the size of your household. But our rule of thumb is three to six months’ worth of your fixed living expenses. That means, enough to pay the bills that are going to keep coming (whether you’re working or not) and put food on the table… and make sure your debt payments are paid on time.


Based on this CNBC article, just 40% of Americans say they could pay an unexpected $1,000 expense with their savings. Don’t be part of that statistic.

When you total up three to six months’ worth of rent or mortgage, utilities, insurance, debt payments, you may find yourself in instant despair mode.

How am I ever going to save THAT much?

Start small, set it on auto contribution, and grow from there as you’re able. You’d be amazed at how many tricky situations a $500 savings can get you out of. Unexpected and unwanted situations arise for all of us, so it’s better to save a little today – even if it’s just $50 a month – towards an emergency savings account (preferably a high interest savings account) so that you don’t get caught in a financial hole.

And remember, don’t tap into that account unless it’s a REAL emergency!

I'm Helen

Having worked in finance for over a decade, I know what matters most to clients. Here, I share with you what you really need to do to stay on top of your money and retire rich.
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