How much emergency fund is enough?

3 min read


Initially, you may find it difficult to save for emergencies. But with the time you will find it easy and secured that you have money for emergencies in your emergency fund.

One of the primary goals of saving is to create emergency fund no matter which age group you belong to. You can start it at any stage in your life. The emergency funds certainly act as a shield to face the unexpected expenses and it is an added pillar to your financial security. 

It is not only about creating an emergency fund and saves for emergencies but you also need to manage and maintain it properly. You can identify the conditions that will need you to use your emergency funds and maintain the funds in such a way that it can help you in such situations. Do not forget to replenish your emergency fund after you withdraw money from it.

How much of money should you have in your emergency fund?

You need to make sure that you are having around six months of your monthly income in the emergency fund. If you can save up to 1 year of monthly income when building an emergency fund, you will be able to receive the best results. However, you should at least think about having three months of monthly income in it.

Create a separate account

Create a separate account when you are building an emergency fund. Do not merge it with other accounts that you use for daily expenses.

If you are putting the emergency expenses and other funds used for daily expenses in the same account then you may feel like using it when you need it for other purchases. You may feel like the money is available in the account and you can use it. It will disturb your emergency funds. So do not merge the emergency funds account with the one you use for your daily expenses.

Make sure you use your emergency funds in cases like,

  • Unexpected expenses
  • The emergency expenses should be a need and not a want
  • The emergency expenses should be unexpected or unplanned and expenses that you cannot postpone.
  • Use the emergency funds only when the need occurs that is only during emergencies. Replenish the emergency funds as you might need them again in an emergency.

Deposit a fixed amount as emergency funds

You should deposit a fixed amount every month in an emergency savings account. You need to have a basic understanding of the average emergency fund amount that you should have when you are depositing the fixed amount. Then you will find it as an effective task to save enough money in the emergency savings account.

Eliminate monthly bills

If you are subscribing to different channels that you are not watching often or spending on other subscriptions that you do not avail, then try to eliminate those expenses.

Refunds, bonuses can be deposited in emergency funds

You can increase the savings for emergencies in your account by putting in money that you get as a bonus, incentives, refunds etc. It is always better to refill your emergency fund this way and you never know you end up building a healthy emergency fund that you can use after your retirement too.

The savings that you make on a monthly basis can be transferred to the emergency funds account. So that you do not end up spending them unnecessarily and it will increase the funds for emergencies too.

When you know that your money is in an emergency account, surely you know you can’t withdraw money except for emergencies. So that helps save a lot of money.

Divert other savings to your emergency fund

If you have been saving money for investing in a second home or you have saved for a holiday trip and you need to postpone your plans then you can park the money in an emergency fund.

The best thing you should always try to focus on is to think about ways that can help you increase your income to accelerate your savings. You can also think about a side business/job to increase your income levels. Once you reach your goals to save for emergencies you can stop going for second income if it is hectic. 

Yes, you may feel it is quite a tight budget and you have to follow a hard way to save for emergencies, but ideally, it is not because you are just cutting down on unnecessary things, which actually is a good practice to increase your savings. You will also feel good when you have enough money to face emergencies. You won’t need to borrow money from anyone and then keep paying back. It gives you a sense of security too.

Predict and replenish

The best way to replenish your emergency fund really fast is assuming emergency money will be utilized. This will help you put in more money into your emergency fund that will also result in extra savings. Do not think about using it for any other purpose or to accomplish any other financial goals. You can use it later when you feel you have reached a level where you can use some part of the emergency funds for other things. And again replenish the account with the amount withdrawn.

Apart from the tips given above, you can reduce the costs on different things that aren’t necessary like eating out frequently, shopping for things that you do not need, buying gadgets when you have one, going on frequent holiday trips, buying expensive holiday gifts, spending a lot on grocery buying things that you don’t need. You can also save on your phone bills to add more money to your savings. 

You can plan and deposit a fixed amount to the emergency account. So that you maintain a healthy balance in the account for emergencies. Do not get tempted to unnecessary spending. It seems like setting goals and following the budget. But it will certainly help you get into the habit of saving. Above all cutting down on non-essential things like eating out certainly would benefit your health as you will be eating at home. Make a list of your essentials and buy those and it is a better way of keeping a check and control over unnecessary spending. You can plan a budget and follow the same, you will feel confided in the long run.

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