If the Covid epidemic taught us anything financially, it is how important an emergency fund really is.

Why? Because no one can fully predict what is going to happen in the future and how we will be affected.

Having a secure safety net to fall back on in difficult times is so important. Yet, many people haven’t put the effort in to have a good net. In fact, many people don’t have any net at all.

What is an Emergency Fund?

An emergency fund is simply a money that you have put aside to use when life become unexpected. And since it is an emergency fund, this money should be used for emergencies.

Having a budget to take care of your usual wants and needs still applies. But sometimes things come up. Your car unexpectedly breaks down, or a medical problem suddenly popped up. These situations are hard to budget for, and that’s where an emergency fund is helpful.

How Much Money is a Good Emergency Fund?

A Specific Number

Good question! According to economists in a study conducted in 2019, a quality amount for an emergency fund is $2886.88. (This number is taking into account inflation from 2019 to now.)

How did they get to that number?

Well, essentially that number is just an average of multiple households 1-month expenses. Said a different way, having $2,886.88 cents will cover many people full expenses for a month. 

Since that’s the case, they have decided that number is a great starting point for an emergency fund. 

3-6 Month of Expenses

The problem with the above amount is there are so many different monthly expenses for every person. For one person, $2,886.88 may cover 1 month but for another person that may only cover half their expenses. 

This is where having 3-6 months of expenses for your situation is important. Understanding what your expenses are first, will give you the necessary information to create a fund that works for your lifestyle. 

It’s at this step that having a budget that is up to date is helpful. 

Where Should I Keep my Emergency Fund?

This is another great question that many people simply overlook. Having a checking account is super helpful for holding the money you pay your bills with but may not be the best place for your emergency fund. 

There are quite a few different accounts that offer great benefits for your emergency funds. These include: savings account, money market account, and a High Yield Savings Account. For more information on all of these, check out our article on 5 Quality Accounts to Grow your Cash.