Here's how much money you should save in an emergency fund so you don't end up broke


Every personal emergency is a crisis in a different way — a job loss, a sexual assault, a car wreck — each taking a unique toll on your life. But all emergencies come at the same time: when you least expect it.

You know you're one botched bike-ride away from major medical bills and serious time off work. But are you actually ready for sudden expenses or an unexpected drop in income?

In other words: Do you have an emergency stash of cash?

More than half of Americans say no, they haven't saved the recommended three months worth of expenses, according to a recent study from the Federal Reserve Board. In fact, 46% of Americans say they wouldn't even be able to manage an unexpected $400 expense: They'd be completely out of luck, or need to borrow or sell something to cover it. 

For millennials, setting up emergency funds can take a back seat to student debt payments and other life expenses. As a result, 31% of millennials do not have an emergency fund, according to a recent report from Credit Karma.

"Emergency funds are one of the most important things you can do for yourself, but the least sexy," said Eric Roberge, a certified financial planner and founder of Beyond Your Hammock, a financial services firm for millennials based in Boston.

So, how many months of income should you have in savings?

An oft-repeated rule of thumb is that you should have three to six months of expenses socked away. But that's a huge range and — to be fair — that rule was written before soaring rents, larger-than-ever student debt and the high costs of staying connected

Plus, it might seem overwhelming to come up with, say, $10,000, to just sit in a bank account.

Your best move? Bust out a calculator.

"It comes down to cash flow," said Roberge, the financial planner. "Understand what money is coming in and what you have to pay for in order to keep your living situation, your good credit and things like that in check."

He suggests starting by taking the income that hits your bank account — minus the stuff you have to pay for — and allocating a bit of it for fun, a bit for student loans and the rest for your emergency fund. 

"Once you get $1,000 in there, you'll have a baseline," he said. "It's not so much about achieving the goal, but continually making progress. It feels good to make progress."

Set up your goals and monitor your progress with an emergency fund calculator, like that from Bankrate.

Automate movement of money to your fund in a high-interest bank account so you don't have to make the decision to transfer it each pay period — and be sure to give it a specific, vivid name that is personally motivating.

"If you are a single person relying on only your income, you'll want to have more than three months saved up, in case you lose your job."

But, do I really need an emergency fund?

Sudden health crises cause the most damage to people's finances, according to the Fed survey above, with 22% reporting unexpected out-of-pocket medical expenses in the past year. And it's no chump change either: The average cost was $2,782.

Yet an emergency fund is not just for what ails the body — your career, your finances and your peace of mind are also at stake. Extra cash could be a cushion that floats you between jobs. It could keep credit card debt at bay. 

For women in particular, a fund provides a liberating peace of mind. Paulette Perhach, a writer at the Billfold, imagines a world in which women have so-called "fuck-off funds," freeing them to get out of bad jobs, relationships or living situations.

But it is not just women. Financial fragility, financial insecurity, or — as the writer Neal Gabler dubs it — "financial impotence," can hit anyone.

It just takes one rough-landing in a pick-up basketball game to throw you off course — and one seemingly-small setback can compound over time.

For a cautionary tale on where you could be in 15 to 20 years without an emergency fund, check out Gabler's much-discussed piece on financial impotence in the Atlantic.