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Everything You Need to Know about Emergency Savings

Credit: annebel146 via FreePik

Be prepared in an emergency: it’s the golden rule of personal finances. But what does that mean, really? 

Preparedness hinges on having a fully stocked emergency fund that’s ready to fend off unexpected expenses and unemployment. 

To make sure your family’s emergency fund is locked and loaded, keep scrolling. Here’s everything you need to know about this special savings account. 

How Much Should You Save?

The general rule of thumb for emergency funds is three to six months of living expenses. Note that this is different from your income, which is a common misconception about this savings account.

To find out how much you need, you’ll have to add up all your essential expenses you pay in a month. This may include the following expenses:

  • Housing costs (mortgage or rent, property taxes, waste management pickups)
  • Insurance premiums
  • Installment loan, line of credit, and credit card minimum payments
  • Groceries
  • Utility bills
  • Family phone bills
  • Essential toiletries and clothing

Some financial advisors suggest you should also include the non-essentials in this total, so you would add your normal streaming services and takeout habits. 

This way, if you rely on your fund after losing a job, you won’t have to deal with the stress of unemployment while also living on an incredibly tight budget. 

What if You Run out of Money?

Running out of money isn’t ideal, but it’s a reality of your finances. Sometimes, you won’t have enough saved up for a major auto repair or medical expense. 

If you don’t have what you need, an online installment loan or line of credit might help you cover the difference. These online loans are a convenient emergency option when you’re busy. Since you can apply from anywhere with internet access, you don’t have take time out of your day to go to an in-person location.

There are a variety of financial products available online, including online installment loans for bad credit, so don’t let a bad credit score stop you from searching out a personal loan. 

Is There Such a Thing as Too Much Emergency Savings?

It depends on how much you have saved up. Most emergency savings go into a basic account, where it earns less than one percent interest. This usually doesn’t matter because you’ll dip into this fund often to cover expenses that come every few months. 

It’s only concerning when you keep a lot of money sitting in a low-interest account. If you don’t use this cash up, you’ll be losing money to inflation. To boost your earning potential, you might want to invest any excess savings into a high-interest account or long-term retirement fund. 

What Can You Use It On?

Think of your savings like an installment loan. You would only borrow an installment loan when you have no other option in an unexpected emergency.

Similarly, you should only ever touch your fund in a true unexpected emergency, like when you need to see a dentist after chipping a tooth, or you must take your cat to the vet after she swallows a ribbon.

But things like a yearly pet check-up or regular dental cleaning are predictable, even if irregular, so you shouldn’t use emergency savings on them.  

Start Saving!

An emergency fund is a financial safety net that gives you peace of mind when life goes sideways. You can dip into these funds during hard times, using your savings to get one up on the unexpected.



  1. Mary Ambrosino says

    Something everyone should do. You don’t realize how important it is until you need it.