How Much of an Emergency Fund Do You Need?

Studies show the majority of adults in America can’t cover the cost of a $1,000 emergency. This lack of savings may put these consumers at significant risk and unable to navigate even a small financial emergency.

How Much Should a Person Save for Emergencies?

Experts agree that the average emergency fund per month is between 3 and 6 months of expenses. For example, if your average monthly expenses are $2,000, your emergency fund should have at least $6,000 to $12,000 in it.

In This Piece

How Much Should I Save for Medical Expenses?
How Much Should I Save for Car Maintenance?
How Much Should I Save for Home Repairs?
Ways to Build an Emergency Fund
How Can I Improve an Emergency Fund?

How Much Should I Save for Medical Expenses?

According to a recent study, 100 million Americans are struggling to pay off their medical debt. While changes have been made to how medical debt is reported to the credit bureaus, high amounts of long-term debt can still have a significant impact on your credit score.

However, this doesn’t mean people don’t have health insurance. It often means the health insurance didn’t cover all the costs. For example, studies show the average 3-day stay in a hospital can cost upwards of $30,000. Even if your insurance covers 80% of these costs, it still leaves you with a $6,000 bill. It’s crucial to set some funds aside to help cover these out-of-pocket costs.

So, how much money in emergency funds should you have for medical expenses? Experts recommend putting aside at least 2% of yo u r income for your medical emergency fund.

How Much Should I Save for Car Maintenance?

If you own a car, you already know how unpredictable it can be. It can be running fine one day and require hundreds of dollars of repairs the next. Because car repairs and maintenance may not be considered monthly expenses, you may not have planned for these costs in your regular emergency fund. For this reason, it’s important to save an additional amount to cover these costs.

Car repair and maintenance costs vary based on the age and type of vehicle you own. A recent AAA study estimates the average car repair runs anywhere from $500 to $600, or even higher. The thing about cars is that you can have several different car repairs in a short period of time.

So, how much emergency savings should you have for car maintenance and repairs? It’s recommended to save at least $100 per month to cover these emergency costs.

How Much Should I Save for Home Repairs?

Home repairs are another unexpected cost you may incur. While some of these costs may be manageable, other expenses may be much harder to afford without having an emergency fund. For instance, basic plumbing repairs can be around $250, on average, while the cost to replace gutters can go as high as $2,500. The cost to replace your HVAC can be as much as $6,000 or higher.

You can’t simply not have these repairs done, and it can be costly to take out an emergency bad credit loan or charge these expenses to your credit card. But, you can avoid these issues by having an emergency savings fund for home repairs.

How much is the average emergency fund per month for home repairs? This depends on the value of your home. Experts say you should anticipate spending 1% to 2% of your home’s value on home repairs and maintenance. So, if your home has a value of $300,000, you should set aside about $3,000, or $250 per month, for home repairs.

Ways to Build an Average Emergency Fund Per Month

Setting up an emergency fund to cover lost wages, car maintenance, home repairs and out-of-pocket medical expenses requires a commitment to saving and tracking your spending. While 27% of Americans don’t think they need a budget, creating and maintaining a budget is crucial for building an emergency fund.

To create a budget, start by tracking your expenses for a month and determine how much money you spend on various cost categories, such as groceries, home costs, utilities and entertainment.

Use this information to create a budget that allows you to meet your personal needs and save money in your emergency fund. Most experts agree you should save anywhere from 10% to 20% of your monthly earnings. If necessary, you may need to cut spending in some areas to meet this 10% to 20% savings goal.

How Can I Improve an Emergency Fund?

If you don’t already have a savings account, now is the time to set one up. This provides a place to safely store your emergency fund and keep it separate from your regular checking account. As your savings account continues to grow, you may want to consider transferring these funds to a high-yield savings account. This step can allow you to earn interest on your savings and help it grow faster.

There are also a number of automatic savings apps that can help you easily save money with a minimum time commitment. This method is ideal for those who don’t want to spend a lot of time tracking their budget or who want valuable financial tools right at their fingertips.

If you want help building your credit while you build your emergency savings account, Credit.com’s ExtraCredit can help. This service allows you to track your FICO credit score, ensure your rent and utility payments are listed on your credit report and earn cash back rewards