Is a $5,000 emergency fund enough?

A $5,000 emergency fund might be enough for a single person with minimal expenses, but it likely won’t be enough for most families. Instead of sticking to a one-size-fits-all number, it’s better to base your emergency fund on your own financial needs. Think about your expenses and any risks you might face when figuring out how much to set aside.

What will $5,000 cover?

Some property repairs can be paid with a $5,000 emergency fund.
Your auto insurance deductible must be paid in the event of an accident or mishap. A $500 deductible is common, but some people have a deductible up to $1,000 or $2,000.
If your car needs new tires, brakes, or other service, you could spend between $500 and $1,000 or more.
You must pay the deductible to use your homeowner’s insurance, such as after weather damage or theft. The average deductible is $1,000, which can be up to $5,000 or even higher.
Appliances often break at the most inconvenient times, and an average repair costs a few hundred dollars. If the appliance needs to be replaced, the cost can reach $1,000 to $3,000 or more.
The average cost of an accident or illness requiring an emergency room trip is more than $1,000, even if you have health insurance. Without insurance, you could pay far more. Pet emergencies can be equally expensive.

What won’t $5,000 cover?

Periods of unemployment are common and can severely impact your finances. Weekly benefits from unemployment insurance are between $235 and $823, depending upon the state in which you reside and other factors. For many people, a $5,000 emergency fund is insufficient to cover expenses during this period, even with unemployment benefits.
Replacing your home appliances can cost substantial money when they reach the end of their service lives. For example, the average cost of a roof replacement is more than $9,000. Depending on the size of your home, the cost to install a new HVAC system can easily exceed $5,000.
The average cost of a hospital stay is $2,883 per day. Since the average stay lasts four to five days, a $5,000 emergency fund would not cover the expense. In addition, specialized testing, treatment and surgeries will dramatically increase the cost.

What is an emergency fund?

An emergency fund is used specifically for unexpected situations where income is impaired or you have unplanned expenses. These expenses range from property and auto repairs to medical expenses.

Why should you have an emergency fund?

An emergency fund provides peace of mind and helps you through rough times. While you don’t know what unexpected situations you may face, you can plan for related expenses with an emergency fund.

Without an emergency fund, many people turn to credit cards to cover their unexpected expenses. This results in skyrocketing debt that may be difficult to pay off in the following months and years. As a result, having an emergency fund can help you avoid accumulating credit card debt unnecessarily.

How much do I need for an emergency fund?

When considering how much money to save in your emergency fund, you must consider your monthly expenses and potential risks. Typically, experts offer a blanket recommendation for an emergency fund amount equivalent to three to six months of necessary expenses.

When calculating your required amount for an emergency fund, consider the following:

Housing and utility expenses
Transportation costs
Insurance payments
Food
Any other essentials

When reviewing your personal budget to calculate expenses, be sure also to include expenses that occur annually or semi-annually to cover your bases.

Other considerations when estimating emergency fund

In addition to tallying up your regular living expenses, focus on potential risks you might be exposed to. For example, if a severe storm passes, you may need to pay out your property and car insurance deductibles simultaneously. Therefore, you must be aware of all of your insurance deductible amounts.

Also, pay attention to things like the age and condition of your roof, appliances, HVAC system and other major features in your home. If you have children, consider surprise expenses that can arise out of nowhere. Extra funds should be saved to accommodate their expenses that exceed your basic household living costs.

What is the average emergency fund in the US?

According to Empower, the average emergency fund for Americans is just $600. As previously mentioned, the recommended amount in an emergency fund is between three to six months’ worth of expenses. Based on this proposal, let’s take a look at what the average emergency fund should be.

According to the Bureau of Labor Statistics, here’s what the average monthly expenses were for households in 2022:

Single person: $3,693
Married couple without kids: $6,372
Family of four: $8,460

Based on these averages, here’s the amount of what each household would need for a six-month emergency fund:

Single person: $22,158
Married couple without kids: $38,232
Family of four: $50,760

Of course, these are just averages. Your actual monthly expenses will depend on your own circumstances. Use our emergency fund calculator below to estimate your emergency savings needs.

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.

Monthly Housing Expenses:

Monthly Utility Expenses:

Monthly Food Expenses:

Monthly Transportation Expenses:

Monthly Insurance Payments:

Monthly Debt Payments:

Other Monthly Expenses:

Estimated amount needed for a 3-month emergency fund

Estimated amount needed for a 6-month emergency fund

How do I build an emergency fund?

Building an adequate emergency fund to safeguard yourself in unexpected situations can take months or years. While your account may not be fully funded for a while, each additional dollar saved contributes to your future financial well-being.

Here’s a step-by-step guide to building an emergency fund:

Define your goals:

The most important step in establishing an emergency fund is to define your goals. Use our emergency savings calculator to estimate your needs. Remember to adjust your goals periodically as your expenses and needs change.

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Create a plan:

Grow your savings by reviewing your budget and determining how much you can comfortably allocate to your emergency fund on a weekly or monthly basis. Calculate how long it will take you to reach your goal. If you are not comfortable with that pace, such as if you anticipate a layoff in the near future, you can take steps to accelerate your savings plan.

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Cut expenses:

Look at subscriptions and memberships you don’t use or need. Then, identify opportunities to save by eating at home, consolidating debt with a personal loan, comparing insurance plans, comparison shopping, buying second-hand items and taking other steps.

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Increase your income:

If you haven’t had an annual review for your job yet this year, ask for a review and prepare to pitch your strengths for a higher raise. You could consider requesting a different, higher-paying position in the same company or offering to work overtime. If you aren’t satisfied with your current workplace, consider looking for a better position elsewhere. You could also take on a side hustle or part-time job.

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Make regular contributions by automating your savings:

Once you have determined how much extra funds you have to save, set up an automated transfer through your banking app. Choose a recurring day or date and an amount that is comfortable for you. Your bank will make the transfers, and your balance will grow steadily.

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Invest your money in a high-yield savings account:

The average high-yield savings account rate is between 4.25% and 5.20%. The average savings account rate is only 0.46%. Earning an additional 4% or more per month on your account balance will help your balance grow more quickly.

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Reduce credit card debt:

As your balances decrease, your minimum credit card payments will decrease. This directly reduces your monthly expenses and potentially your savings goal for your emergency fund.

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Where is the best place to keep an emergency fund?

The best place to keep an emergency fund is a high-yield savings account, as not only will your funds earn interest at a higher rate, but they are also accessible. As of September 2024, the best high-yield savings account rates were between 4.25% and 5.20%.

Other savings options to place your emergency fund include:

Naturally, all of these options have benefits and drawbacks, so compare them to savings accounts to see which option is right for you.

It’s also important to note that while having a healthy emergency savings account balance is essential, having too much money in this account is not helpful. After your emergency savings account is fully funded based on your needs, consider other opportunities to invest your money for a higher return.

Our top picks for high-yield savings accounts to build an emergency fund

FAQs: Is a $5,000 emergency fund enough?

Is $5,000 a good emergency fund?

For some people, $5,000 may be sufficient for an emergency fund. However, what is considered a good account balance varies from person to person. Experts suggest saving three to six months of your living expenses in an emergency fund. In addition, you should have enough money in your fund to cover your insurance deductibles.

When deciding if $5,000 is a good emergency fund amount, consider other important factors. These include the state of the economy, additional unexpected expenses your children may have, the stability of your income and the condition of your health, home and vehicle.

Is $20,000 a good emergency fund?

As previously discussed, the ideal emergency fund amount is based on your monthly expenses and other financial factors listed above. Using the recommendation to save six months of your expenses in an emergency savings account, a $20,000 emergency fund may be sufficient if your essential living expenses are $3,333 per month or less.

What is a realistic emergency fund amount?

The recommended savings balance for an emergency fund is equivalent to three to six months of monthly expenses. Saving the recommended amount can be challenging for many people. Think of your savings efforts as climbing stairs. With each deposit in your emergency savings account, you are taking steps toward achieving your goal.

About the Author

Kimberly Varvel Finance

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.

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Blake Esken Los Angeles Times

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