Essential Savings: The Recommended Amount for an Emergency Fund Stands at $35,000 - Here's the Justification.
Title: Whether you're ready or not - here's the reality of your emergency fund
Hey there! Ever wondered just how big that emergency fund of yours is supposed to be?
Well, according to the folks at Investopedia, you should have a staggering $35,000 stashed away! That's enough to cover six months of expenses, which is what experts recommend for the average household. But wait, does that figure seem a bit excessive to you? It's around 40% of the average US household's annual income, after all.
But remember, an emergency fund exists for unexpected costs like a surprise home or car repair, or losing a job. To drive the point home, Investopedia took the cost of six months' expenses for an average household and came up with a whopping total of $35,217 - a figure significantly higher than most households' savings.
What's more, with concerns about tariffs, market volatility, stubborn inflation, a possible recession, and falling consumer confidence, it's likely that you could face unexpected expenses. In a 2022 survey by the Federal Reserve, about 43% of respondents said they would rely on savings in a financial emergency - more than any other response like working more, borrowing money, or cutting spending.
So how much do you need for your own emergency fund? The exact amount depends on the number of people in your household and their specific needs. Financial experts recommend aiming for enough cash to cover at least three, and ideally six, months of expenses for items like rent or mortgage, utilities, food, transportation, and medical costs.
But where should you keep your emergency fund? According to Investopedia Editor-in-Chief Caleb Silver, a high-yield savings or money market account is a smart move. "Your emergency fund needs to be liquid and accessible immediately, but you should try to keep it in a higher interest-earning type of account," he says.
To calculate the figures, here's how Investopedia did it: medical care was based on the average annual premium cost for single-coverage employer-sponsored health insurance, multiplied by 2.5 to reflect the average number of people in both households and consumer units. They added 2% to account for COBRA administrative costs. Car costs were calculated by adding together the annual fixed costs for two vehicles and the annual variable costs for one vehicle. Housing and utilities were calculated by adding together the median monthly housing costs for both owners and renters, along with annual consumer expenditures for trash and garbage collection, telephone and internet services. The cost of groceries came from annual expenditures on food at home. All figures were adjusted for inflation to reflect March 2025 dollars.
So, are you prepared for the unexpected? Build that emergency fund up, and rest easy knowing you're ready for whatever comes your way. And remember, if you're looking for a place to grow your savings, Pepperstone might be the right choice for you. Check them out today!
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult a financial advisor before making significant financial decisions.
FOOTNOTES:1 Census Bureau data for the average income of American households: https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-families-households.html
2 Federal Reserve data for the median balance in transaction accounts: https://www.federalreserve.gov/surveys/savings/dataviz/historical/demo-fdmedhome.htm
3 Federal Reserve 2022 survey on household financial planning: https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022.htm
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