How much should your emergency savings account contain?

By John Atkins

As you may have read in the past, we love emergency savings accounts at Self Lender. Our credit builder accounts are setup to help you save and are a great way to start your emergency savings fund. At the end of the 12-month term, you have a significant nest egg that we strongly recommend putting towards an emergency savings account. Here's why...

Why is an Emergency Savings Account so Important?

The number one reason: life doesn't always go according to plan.

Contrary to your youthful beliefs, you are not invincible, says Carla Dearing, CEO of SUM180, an online financial planning service.

Catastrophes happen everyday and you should never consider yourself  immune. Instead of relying on good fortune, take comfort in knowing that you have some money set aside for when life takes a turn for the worst.

“The truth is no one should be without an emergency fund. Unexpected expenses happen all the time. Without a cushion of savings, whenever something goes wrong (e.g. a fender bender, a roof that needs repairs, a pet that needs surgery), it is too tempting to fall into debt, to drain a long-term savings account, or to borrow from a 401(k),” said Dearing. “In a very real sense, not having an emergency fund is the worst money mistake a person can make because it often leads to other serious money mistakes.”

It’s important to have a financial plan for emergencies to turn to when life turns against you.

How Much is Enough for an Emergency Savings?

The answer, like many aspects of finance, depends on your individual situation. Questions to consider:

  • How much do you make per month?

  • How many people live in your household?

  • How many assets (houses and cars) do you own?

“Many factors go into generating an emergency savings number, but a general rule of thumb is to have enough to cover three to six months of expenses if you were to experience loss of income; think three if you have a job that is easy to find and six if you’re in a more niche space,” said Ashley Agnew, Associate Director of Relationship Development at Centerpoint Advisors, LLC. “Additionally, if you are a homeowner, you should have roughly 3% additional savings to account for maintenance and repairs.”

Remember, not everyone will need the maximum amount of six months. If you live with a roommate, have no children, and make a higher than average salary, then you won’t need as much as someone with a higher cost of living or with a family.

If you work in an industry where job searches can take longer than three to six months, it’s important to adjust your emergency savings account to reflect this, advises Abby Eisenkraft, EA, ATA, ATP, CRPC of Choice Tax Solutions.

“Back in the day, funds to cover three to six months was advisable, because the job search hardly took longer than that,” says Eisenkraft. “In 2008, we know that people often didn’t obtain new employment after a job loss, even after a year’s search. Now, six to nine months is advisable, but in my office, we know it can be more.”

Bad at Saving? Try Acorns

Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t have a savings account at all, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for

If you consistently fail to save due to bad financial habits, try using an app that forces you to save. One app that makes it virtually impossible not to save is Acorns.

John C., a financial blogger from Action Economics and avid Acorns user, wrote:

“Acorns rounds up every transaction you make with your card to the nearest full dollar and puts it in an investment account composed of index fund ETFs.” He continued, “Acorns also allows you to set up automatic transfers of any amount to your account.”

While Acorns will help you get started with creating an emergency savings account, you still need to adjust your daily spending habits in order to effectively save a significant amount.

It’s All About Commitment

Commitment is one of the biggest aspects of savings, believes Eric Hutchinson, the managing director of Hutchinson Financial.

“If you are committed to building your emergency cash reserves, you may need to begin making some trade offs and lifestyle adjustments to help you reach your goal,” said Hutchinson. “Maybe you take a sandwich for lunch at work one or two days a week instead of eating out with the gang from the office.”

Whatever tradeoffs you make to help build savings, commit yourself fully to reaching your goal.

About the Author

John Atkins was the community manager for Self Lender.

Written on September 26, 2016

Self Lender is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at

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