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$20,000 may be enough for an emergency fund if it is equivalent to at least three months worth of expenses. However, you might need to save more if your monthly living expenses are high. As everyone has different monthly costs and different financial circumstances to consider, no single sum is suitable for everyone.
Instead of aiming for an arbitrary dollar amount, experts recommend stashing away three to six months’ worth of living expenses in an emergency savings account.
Although having an emergency fund is important, putting too much money away can be counterproductive. $20,000 in your emergency fund might be too much if it exceeds the amount needed to cover your expenses for three to six months. This means you could have extra money sitting in a savings account that isn’t effectively increasing in value.
Emergency funds are typically held in savings accounts, as the funds need to be immediately accessible should an emergency arise. However, the downside to keeping the funds in a traditional savings account is that they generally have low APYs, meaning your money’s growth is not keeping pace with inflation.
Alternatively, high-yield savings accounts offer quick access to your funds with a substantially higher rate of return. As of October 2024, high-yield savings account (HYSA) rates were as high as 4.10% to 4.80%. This is significantly more than the average savings account rate, which stands at 0.46%.
If your monthly expenses are low, putting $20,000 in a HYSA may prevent you from enjoying a higher rate of return. By investing a portion of that money in stocks, you stand to earn a substantially higher return.
However, the stock market is riskier and prone to extreme fluctuation. Additionally, it often takes a few days to cash out your investments and transfer funds to your bank account. This is not ideal in many emergency situations.
The best option for your emergency fund is low-risk investments that are easily accessible. If you have more savings than needed for your emergency fund, strike a balance between funding an HYSA and an investment account.
Other savings options to build your emergency fund include:
As mentioned, financial experts recommend saving three to six months of living expenses in an emergency fund to help navigate unexpected and costly situations. Therefore, the amount needed in an emergency fund will vary from person to person.
Your emergency fund should cover living expenses, such as:
To know how much you need in your emergency fund, analyze your budget for your essentials and use an emergency fund calculator. If you are concerned about inflation or an economic downturn, you may also benefit from a higher emergency fund balance.
Depending on your individual needs, a 3-month emergency fund or a 6-month emergency fund may be a better fit for you. Using the fields below, enter your estimated monthly expenses to calculate how much you should save for a 3-6 month emergency fund.
Building an emergency fund takes time, which can be challenging for some people. By taking these steps, you can grow your savings at a faster pace:
If you’ve already done the above, here are some more ways to increase your emergency fund:
A $20,000 emergency fund is sufficient for some people. If your monthly expenses are $6,667, this amount is equivalent to three months of your living costs. The fund would cover six months of your expenses if your expenses are no more than $3,333 per month.
A $5,000 emergency fund may be enough if you live frugally with minimal expenses. This is equivalent to three months of expenses at $1,666 per month or six months of expenses at $833 per month. $5,000 may also cover emergency expenses, such as appliance repair, auto repairs and insurance deductibles.
A realistic emergency fund amount is equivalent to three to six months of your living expenses. However, saving a sizable amount of money takes time. With each contribution to your savings fund, you are better prepared for unexpected costs than you previously were.
Kimberly Varvel brings over 12 years of experience in commercial real estate finance, specializing in loan processing, underwriting, and sales. With more than five years as a licensed real estate professional and over 14 years as a professional freelance writer, Kimberly has a unique blend of practical experience and writing expertise. Her comprehensive knowledge in the real estate sector enables her to provide insightful, accurate, and engaging content that helps readers navigate the complexities of commercial real estate finance.
Blake Esken has over 15 years of experience in product management and has been a member of the Los Angeles Times staff for over five years.
As part of his role at the Los Angeles Times Commerce Team, Blake acts as the in-house reviewer and fact checker for LA Times Compare. He supervises all content for compliance and accuracy and puts to use skills he has honed through years of experience managing high-stakes projects for a range of industry-leading companies.
He has a strong background in data analysis, compliance, and communication, which allows him to support LA Times Compare through fact-checking in an effort to provide up-to-date and factual information across our content.
