How Big Should My Emergency Fund Be?
Insights from a Financial Advisor in Peoria Heights, IL
Life is unpredictable. One day, everything is running smoothly, and the next, you’re hit with a medical emergency, job loss, or unexpected home repair. That’s why having an emergency fund is crucial. But how much should you save?
At Heights Wealth Management, we help individuals in and near retirement across Central Illinois prepare for the unexpected with strategic financial planning. Here's what you should know about building and maintaining an emergency fund that fits your needs.
The General Rule: 3 to 6 Months of Expenses
Financial experts commonly suggest setting aside three to six months’ worth of essential living expenses. This range offers a buffer against unforeseen events such as medical emergencies, job loss, and major home repairs.
To determine your target amount:
- Calculate your essential monthly expenses: Add up costs for housing (rent or mortgage), utilities, groceries, insurance premiums, transportation, and minimum debt payments.
- Set your savings goal: Multiply your total monthly essential expenses by three to six, depending on your comfort level and job security.
For example, if your essential expenses total $3,000 monthly, aim for an emergency fund between $9,000 and $18,000.
When to Save More
While the three- to six-month guideline is a good starting point, individual circumstances may warrant saving more. Here are a few times when that might make sense:
Job Stability
If you’re in a volatile industry or role, consider saving more. Recent data indicates that the average duration of unemployment is 23.7 weeks (approximately 5.5 months), with some industries experiencing even more extended periods. This is the longest average since April 2022.1
Income Variability
Freelancers, contractors, or those with irregular income should aim for a larger cushion, possibly up to 12 months of expenses.
Dependents and Obligations
Having dependents or significant financial commitments may require a more substantial emergency fund.
Health Considerations
Additional savings can provide peace of mind if you or a family member have ongoing medical needs.
The Reality of Emergency Savings Among Americans
Despite recommendations, many Americans are unprepared for financial emergencies:
- Approximately 37 percent of Americans can’t afford an unexpected expense over $400.2
- The median emergency savings for Americans is $600.3
- In 2022, 54 percent of adults had set aside money for three months of expenses in an emergency savings or “rainy day” fund, down from previous years.2
How to Build Your Emergency Fund
If you don’t have an emergency fund yet, here are some tips to help:
Start Small and Be Consistent
Begin by setting aside manageable amounts regularly. Consistency is key.
Automate Savings
Set up automatic transfers to your emergency fund to ensure regular contributions.
Reduce Unnecessary Expenses
Identify and cut discretionary spending, redirecting those funds to your savings.
Utilize Windfalls Wisely
Allocate bonuses, tax refunds, or monetary gifts to bolster your emergency fund.
Choose the Right Savings Vehicle
Keep your emergency fund in a liquid, easily accessible account, such as a high-yield savings account or money market account. This ensures you can access funds quickly without penalties.
Work with a Financial Advisor in Peoria Heights to Strengthen Your Emergency Fund Strategy
Emergency savings are a foundational part of financial planning—especially for those nearing retirement. At Heights Wealth Management, we guide clients through every step of building a resilient financial plan tailored to their goals.
Jon Andrew, a local financial advisor based in Peoria Heights, IL, is here to help you assess your needs, optimize your savings approach, and align your emergency fund with the rest of your long-term strategy.
📍 Visit us at 4810 N Prospect Rd, Peoria Heights, IL, or Contact Us online today to schedule a personalized consultation.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.