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Finance for Homeowners

How Big Should Your Emergency Fund Be?

Tough situations tend to raise many complicated questions, one of the questions you might be asking yourself is about the size of your emergency fund.

Having an emergency fund may help to ensure that you and yours are provided for, regardless of what comes next.

How Much Should Your Emergency Fund Be?

You’ve probably heard at least one answer to the, “How much should I have saved for an emergency,” question. 3-6 months worth of living expenses is the line commonly trotted out by financial advisors but for most people, saving tens of thousands of dollars for a potential emergency and then not touching those funds is a daunting prospect. So daunting in fact that many don’t even bother trying.

Let’s eliminate the daunting portion of creating a recommended emergency fund to get you heading in the right direction! Instead of focusing on six months worth of living expenses, start small and save enough to buy groceries, pay an energy bill, the car payment, a month of rent or mortgage, etc. should you face an emergency. By thinking smaller, and more specific to you and your monthly debt obligations, you’ll discover just how big your emergency fund should be.

emergency fund check in

Ways to Create an Emergency Fund

In lieu of saving thousands every week, here are realistic ways to create a recommended emergency fund, to see you through the potentially dramatic conclusion of 2020, and beyond.

Save Your Spare Change

Some banks now feature a round-up savings program that will help you slowly build up an emergency fund in your savings account. For example, if you pay an $87.32 grocery store tally with your debit card, an even $88 will come out of your checking account, with that rounded-up spare change of $.68 added to your savings. This may seem like a trivial amount of money but it’ll add up quickly — a quarter here, $.95 there, until you have a little nest egg should you need help paying a utility bill or to pay for a weekly shopping trip at some point in the future. Of course, actual loose change in a real life piggy bank never goes out of fashion either.

Don’t forget to also save some of the money you’re saving by not going out to eat as much right now! That kind of ‘spare change’ will really boost your emergency fund!

Open a “Secret” Bank Account

Open up a free savings account at an online bank with no service fees or a similar free savings account at a local bank location that is different from your regular, everyday bank. Then set up an automatic scheduled transfer of $5, $20 or $50 — whatever you can afford — every week from your checking account. Having this rainy day savings accumulate at a separate bank will feel like a “secret” in that you may forget about it and then, when that rainy day arrives, you will think, “wait! I have a recommended emergency fund that can help with this emergency!”


Opening up a HELOC as an emergency fund to have at the ready should an emergency occur may be a smart way to prepare for the unknown ahead. A HELOC also does away with the need to actually answer the question, how big should your emergency fund be? When utilizing the equity in your home in this way, you only start to make payments on what you draw out of the HELOC, which will only happen in an emergency. Having a HELOC open and accessible could be one of the smartest ways to manage your money better in 2020 and to be prepared for the future. Find out how much home equity you can access through a HELOC.

Automatic Paycheck Deduction

If your employer allows it, tweak your direct deposit instructions to send a nominal amount to your “secret” savings account or into the savings you already have set up at your bank. Making this happen automatically from your paycheck may end up being as routine as your 401(k) contribution percentage and/or loan payment, and other payroll deductions that you no longer feel ‘missing’ from your paychecks. And soon, you’ll have amassed a tidy recommended emergency fund for whatever else 2020 has in store.

Sell Your Old Stuff

One simple way to kickstart your emergency savings fund is to sell some of your old things; from vinyl records to old toys and outdoor power equipment to kitchenware, you may be sitting on the recommended emergency fund already! Don’t despair if you do not have any single item worth hundreds lying around, because every dollar counts so maybe you sell a handful of things for $25 each instead!

No matter how much you are able to comfortably save in an emergency fund, it is important to have at least some money set aside for a ‘just in case’ situation. Should you find yourself working with a limited budget because of an emergency, it could be beneficial to not only have built up a recommended emergency fund but also learning how to prioritize your debt.

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You should consult your tax advisor and/or attorney to understand the tax and legal implications of the strategies and financial products in this article.