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Smart Saving Secrets: Crafting the Perfect Emergency Fund

Paymaster Ribbon Writer

9 min read. Updated October 21, 2023.

About 20% of Americans cannot afford a $1,000 emergency when it arises, according to a study by Bankrate. To be prepared for unexpected expenses, we explain how much emergency fund you should have.

When faced with a financial emergency, some rely on credit cards or loans to pay for unplanned expenses such as medical bills or home repairs. This may result in a vicious cycle of debt that is challenging to escape.  

While it can be hard to get started, saving for an emergency fund is one of the most important things you can do for your financial well-being. You'd feel more in control whenever a sudden expense arises.

When you’re living paycheck to paycheck, it can be difficult to put some aside for a rainy day fund. In this article, we provide you with guidelines to achieve your savings goals.

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What is an Emergency Fund?

A piggy bank showing how much emergency savings you should have.

An emergency fund is an amount of money set aside in a dedicated savings account that you utilize as a safety net to pay for unforeseen needs. This could be anything from car repairs to pet ill health or a job loss. 

The goal of an emergency fund is to save up enough money so that you can cover these unexpected costs without going into debt. Ideally, you want to keep at least three to six months' worth of living expenses in your bank account. 

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Emergency Fund Vs Savings Account

An emergency fund is different from a savings account in that it is only used for unforeseen expenses. A savings account is where you build funding for various long-term goals, like a down payment on a house or a new car.

Putting cash away for your financial goals can be in a high-yield savings account or checking account for instance. You deposit that cash for a specific project such as a holiday, sorting out living expenses, or just a way of accumulating more wealth, investing, and increasing net worth. 

On the other hand, you withdraw emergency funds only when you have a cash urgency - an unforeseen event causing unexpected spending. Such unexpected scenarios may include accidents, sickness, loss of job, car repair, natural disasters, etc.

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Why Do You Need an Emergency Fund?

A man building an emergency fund with enough savings.

There are a few reasons for having six months of expenses in your bank account. The first reason is that it can help you avoid going into debt. If you have an unexpected expense and have no savings to cover it, you may be tempted to put it on a credit card. 

An emergency fund can help you avoid this by giving you a cushion to fall back on; you can dip into it to pay for many costs without having to re-mortgage your house or sell other assets.

This cash balance helps you avoid financial stress, not having to worry about every little bill that comes up and hits your checking accounts.

Another scenario would be when claiming with your insurance to cover the repair of an insured item. Even if you will get reimbursed, you might need to advance the cash to settle the bills.

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How Much Money Should You Save Up For Emergencies?

A couple enjoying financial stability with enough to cover unexpected expenses.

The amount you need in your emergency fund depends on your circumstances. If you have a family, you will likely need more in your emergency savings than someone single. 

You will also need to consider your lifestyle. If you live in a high-cost city, you will likely need more cash than someone who lives in a smaller town. The cost of living, even food, is usually higher in big cities, so you will need more savings to cover unexpected costs.

If you are approaching retirement, the rule differs too as your monthly work income will stop. If you are fortunate enough to have investment funds, health care, and/or life insurance in place, the cash you've been putting away could give you peace of mind.

Do a full review of your bank accounts, basic expenses such as food and transportation, and monthly tax bills, to tailor your savings goals for the long term.

Financial experts recommend that you have enough to cover three to six months' worth of expenses, in high-yield savings or checking account. So, to know the right amount for you, calculate your monthly expenditures and multiply it by 3 to 6, depending on the number of months' worth you want to maintain.

This will show you how much money you should have in your checking accounts.

Need a Monthly Budget Spreadsheet? Download one here.


5 Ways to Build an Emergency Fund

A man knowledgeable about personal finance to feel financially secure.

When you decide to build emergency savings, the task may seem daunting. You might not know where to start or how to save enough cash.

Here are 5 ways that you can build your emergency fund and achieve your savings goals:

1. Make a Budget

The first step to saving money for emergencies is to know where it is going. Make a budget and track your spending so you know how much cash you can keep in your emergency savings balances.

Great article on budgeting here The 50/30/20 rule: how to budget your money more efficiently? 

2. Set a Goal

Once you know how much money you can afford to save, set a goal for how much cash you want to allocate to your emergency fund - remember the rule and aim for 3-6 months worth of expenses. Keep track of these funds and stay motivated, especially during challenging months. 

3. Automate Your Savings

One of the best ways to store money effortlessly is to set up an automated withdrawal rule from your paycheck and deposit it into your dedicated checking balances. Warren Buffet, arguably the most successful investor in history, once said: "Don't save what is left after spending; spend what is left after saving."

We recommend 2 top players to help you with that: the Revolut banking app and Acorns.

Automated savings will not only help you reach your financial goals faster, but it will also develop your habit of saving. 

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4. Cut Back on Expenses

Look at your budget to see where you can reduce spending. Maybe you can cut back on eating out or going to the movies.

Perhaps once a week you change your transportation method to keep costs down. Review your food shopping and replace big-name brands with cheaper substitutes.

Whatever it is, saving money will be easier if you can find ways to reduce your outlay because you'll have more cash to channel to important sections of your budget.

5. Earn Extra Income

If you want to speed up the saving process, try earning extra income. There are many ways to do this, such as taking on a part-time business or starting a side hustle. Those looking to start their own business should read our Ramp Review.

We also explore having a side hustle in 10 Easy Ways to Pay Off Debt

For example, if you work a 9 to 5 job, try to use your weekends or evenings to make some extra cash. You can also offer your services as a tutor, pet-sitter, or freelance writer online.

Best Place to Keep Your Emergency Savings

A man making the minimum direct deposit amount in his cash account.

If you are considering where to keep your emergency fund, one thing you need to think about is how easy it will be to access your money. After all, the whole point is to have money readily available when you need it.

Another factor to consider is the interest rate. You want to ensure that your money is earning interest so it can grow over time. With that said, here are a few of the best places to keep your cash:

●     Bank

If you have a savings or checking account in a bank, this is likely the easiest place to store your emergency fund. Because you can easily transfer money in and out of your account, it will be easy to access your funds when you need them.

Plus, most banking institutions offer interest on these accounts, so your cash reserve will multiply over time. Just be sure to avoid high fees and shop around for the best interest rate from financial companies and compare it with your bank.

●     Credit Union

Like banks, credit unions offer checking and savings accounts that can be used to store your emergency funds. In addition, credit unions typically have lower fees than banks and may offer higher interest rates on their accounts.

●     Roth IRA (Individual Retirement Account)

If you are over the age of 18 and have earned income, you can open a Roth IRA. This account is designed for retirement investing, but you can withdraw your contributions at any time without penalty. But, if you withdraw your earnings before age 59½, you may be subject to tax and penalties. Consult a financial advisor.

While a Roth IRA is not technically designed to keep an emergency fund, it is another option if you need to withdraw your money in a pinch. Just be sure to only take out your contributions, not your earnings.

Roth IRA's investment can be in mutual funds, stocks, and bonds. Those willing to take more risks may want to consider Crypto IRAs. Read our Review

●     Money Market Account

A money market account is a form of savings account that often provides a greater interest rate than traditional ones. While the interest rate may be much higher, the account may have some restrictions, such as a limit on the number of withdrawals you can make each month.


You don't want your life's savings to disappear overnight - check that you hold insured products by the Federal Deposit Insurance Corporation (FDIC insured). They ensure that you don't lose your money if your financial institution fails, up to a set threshold.

The deposit protection by the FDIC applies to commercial banks and savings banks. Insured products include savings accounts, money market accounts, and negotiable order of withdrawal (NOW) accounts. Items not insured include stocks, bonds, and funds.


Average Retirement Savings Goal by Age

A family who can feel confident about their future thanks to job stability.

While there is no magic number for how much cash you should have in the bank for retirement, there are some general guidelines. For example, if you want to retire by age 67, you should have accumulated 10 times your salary by age 57.

Here is a breakdown of the average retirement savings goal by age:

  • Age 30: $14,000

  • Age 40: $116,000

  • Age 50: $383,000

  • Age 60: $1.14 million

  • Age 67: $2.41 million

How Much Should I Have in My 20s, 30s, 40s, or 50s?

A self-employed man using an emergency fund calculator.

This is a common question and there is no one-size-fits-all answer.  How much money you should have will depend on factors like your age, income, personal expenses, and lifestyle.

For example, if you are in your 20s and just starting, you may not have as much cash accumulated as someone in their 30s or 40s. But, if you make a plan and start saving early, you can still reach your goals.

Here are a few general guidelines for how much money you should have saved based on your age: 

●      In your 20s:

At this age, you may be just starting your career and may not have much extra money to save. But, it's important to start now if you can. Even if you can only retain a little bit each month, it will add up over time.

Popular author and investor, Warren  Buffett, in his book The Snowball, said that if you start with just $10 per week in your 20s, you will have $1 million by the time you retire. 

●      In your 30s:

By this age, you may have a few more responsibilities, such as rent or mortgage payments, or a family. But, it's still important to think of retirement. This may be the best time to start saving because you have more earning power and may be able to accumulate more.

Aim to have about 1x your salary amassed by age 35. If you make $50,000 per year, target to have $50,000 saved by the time you are 35 years old. 

Related Blog Post: Is it Really Possible to Retire at 30?

●      In your 40s:

A general rule of thumb is that you should have saved at least 3x your salary by age 40. So, if you earn $50,000 per year, try to have $150,000 by age 40. This may seem like a lot of money, but if you start early and make saving for retirement a priority, you can reach this goal. If you want to maximize your returns, keep in mind that a financial advisor or your banking representative can point you in the right direction.

●      In your 50s:

At this age, you are getting closer to retirement and may want to start thinking about the money you'll need. When you are in your 50s, you should have saved at least 5x your salary. If you have investments in stocks, you may want to gradually reallocate your holdings to less risky companies.

Other Common Saving Goals

A teen who invest for other factors such as bachelor's degree deposits.

Besides retirement, there are other common saving goals. For example, you may want to save money for a down payment on a house, a new car, or a child's education. Many people keep multiple saving goals at the same time.

The important thing is to make a plan and focus on one goal at a time. Once you reach your goal, you can move on to the next one. If you try to save for everything at once, you may get overwhelmed and give up. 


A family with a smaller emergency fund which covers basic living expenses.

An emergency fund is an important part of your financial plan. Building emergency savings is one of the smartest things you can do for yourself and your family.

Not only will it give you peace of mind in case of a job loss or unexpected expense, but it can also help you avoid debt if something happens.

How much to save depends on your situation but there are general guidelines. It may seem like a daunting task, but with some careful planning and regularity, you can have an emergency fund that will cover you in times of need.

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No Financial Advice. This article does not provide financial advice and has been prepared without taking into account any person’s investment objectives, financial situation, or particular needs. 

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