How Big Should Your Emergency Fund Be?

An emergency fund is money set aside for the unexpected: a job loss, a car repair, a surprise medical bill. It's the difference between a stressful month and a financial crisis.

Find your number

Add up your must-pay monthly costs: housing, utilities, groceries, insurance, transportation and minimum debt payments. Multiply by three to six.

• Lean toward three months if you have steady income, a two-income household or good job security.
• Lean toward six months or more if you're self-employed, a single earner, or work in a field with layoffs.

Where to keep it

Somewhere safe, separate and easy to reach, like a high-yield savings account. Not in stocks, and not in your everyday checking account, where it's too easy to spend.

How to build it

• Start with a mini goal of $1,000. It covers most small emergencies.
• Automate a transfer every payday, even if it's small.
• Put windfalls like tax refunds or bonuses straight into the fund.

What counts as an emergency

Unexpected, necessary and urgent. A broken furnace qualifies. A great sale doesn't. When you do use it, rebuild it before you save for other goals.

Emergency funds in retirement

Once you're retired, an emergency fund matters even more, because there may not be a paycheck to fall back on. Many retirees keep 6 to 12 months of expenses in cash, and some keep a year or two of planned withdrawals in safe accounts so they never have to sell investments during a market dip.

Common retirement surprises

• Dental work and hearing aids, which original Medicare generally doesn't cover.
• Home repairs like a new roof, water heater or furnace.
• Helping a family member in need.
• Car repairs or replacement.

Planning for these ahead of time turns a crisis into an inconvenience.