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An emergency fund can protect you during a financial setback, such as unexpected bills or the loss of a job. But many people underestimate how much they should set aside for emergencies. An average U.S. household could need $3,000 or more in an emergency fund for groceries alone.
Learn how much you actually need in an emergency fund, where to keep it, and how to start saving.
Key Takeaways
- An emergency fund that covers three to six months of expenses for an average U.S. household should have $1,588 to $3,176 for food alone.
- Investopedia’s analysis found that a six-month emergency fund for an average household should have about $35,000 in it.
- Even if you have to start small, setting aside money will help you handle financial emergencies and unexpected bills.
- Keep your emergency fund in an account where it can earn interest, such as a high-yield savings account or money market account.
How Much Should My Emergency Fund Have for Food?
Many financial advisors, including Investopedia, recommend having an emergency fund that could cover your spending for three to six months. But what does that look like in terms of numbers?
According to the U.S. Bureau of Labor Statistics, the average household in the United States spends nearly $10,000 per year on food: $6,053 on food at home and $3,933 on food away from home. That would mean six months of food expenses would equal $4,993.
However, if you’re relying on your emergency fund, you are likely cutting back on extra expenses like dining out. Since eating out is generally more expensive than eating at home, grocery costs for six months would be slightly less. Investopedia’s analysis found that an emergency fund covering six months of expenses for the average household would include $3,176 for food.
That means an emergency fund with three to six months of expenses should have $1,588 to $3,176 in it for food alone.
How Much Should My Emergency Fund Have Total?
Investopedia’s analysis of consumer spending found that the average American household would need an emergency fund of about $35,000. This would cover six months of expenses, including:
- Medical care
- Car expenses
- Housing
- Utilities
- Food
Catherine Valega, a certified financial planner and owner of the bespoke wealth and tax management boutique Green Bee Advisory, also recommends that clients keep several months of “working capital” in their main bank account, with a small extra margin. “Income comes in, and they pay their bills from there,” she says. This gives you easily accessible cash for your everyday expenses, allowing you to save your emergency fund for true emergencies.
How to Start an Emergency Fund
Saving $35,000 may feel daunting. But when it comes to emergency savings, starting with what you can afford is better than nothing. Look for small, discretionary expenses that you can eliminate each month, or consider taking on extra work in the form of a side hustle or second job. Then put that money toward savings.
If you set aside $50 per month, you’ll save $1,000 in less than two years. If you can set aside $100 a month, you’ll have $1,000 available in less than a year. This amount likely won’t cover your living expenses, but it will give you a cushion to handle emergencies like a home repair or an unexpected medical bill.
Valega also suggests that clients help their savings grow by keeping emergency funds in money market accounts, high-yield savings accounts, certificates of deposit (CDs), or U.S. Treasury bills. The goal is to put these funds somewhere that earns interest but is still liquid and accessible.
The Bottom Line
If you want to build an emergency fund that will cover several months’ worth of expenses, you’ll need to set aside as much as $3,000 just for food for your household. But if this amount seems daunting, don’t let that stop you from saving. Even small amounts, set aside regularly, can grow to significant savings, especially if you keep them in an interest-earning account.
