By Maura Keller
As we all know, the unexpected can strike at any moment. A job loss, sudden medical issue or family caregiving duties can all affect your ability to work. If this happens to you, what will you do?
According to a January 2025 U.S. News & World Report survey, 42% of Americans don’t have an emergency savings fund, and 40% of those surveyed couldn’t cover a $1,000 emergency expense with cash or savings, though 60% said they’ve had an unexpected expense pop up in the past year. But establishing an emergency fund can help you avoid or minimize financial hardships that may arise as the result of an unexpected crisis.
Shelley Edgington, senior vice president of retail banking at One Community Bank, says an emergency fund is money set aside to cover unexpected life events, including losing your job, or you or a family member experiencing a medical event, which may preclude an individual from working. In the case of a medical issue, you may turn to the Family and Medical Leave Act, which entitles eligible employees to take job-protected leave for specified family and medical reasons — but it is unpaid.
“Emergency funds are usually created with a savings account or money market funds, because they are most accessible and typically allow you to withdraw funds as needed while still earning interest,” according to Edgington. “Depending on how you manage your funds, some people can easily blend [emergency savings] in with their regular savings, knowing there is a specific amount set aside that they won’t touch, while others avoid co-mingling those funds. It’s completely a matter of [your] preference and funds management.”
FUNDING A FUND
So, how much cash should you sock away for emergencies?
It depends on your financial circumstances, but it’s recommended that you have a minimum of three to six months’ worth of expenses tucked away in an emergency fund to cover your day-to-day needs.
As Edgington explains, this amount should cover your mortgage or rent, car, credit card and insurance payments, as well as groceries and utilities. You should also save for any medical deductibles or co-pays you might incur.
“Accumulating this amount can be challenging in today’s economy; however, anything saved is better than no savings at all,” she says. “And as we all go through life changes, it’s important to reevaluate what you have set aside as your expenses change.”
That’s why Edgington stresses the importance of starting an emergency fund early, and even teaching children to save for emergencies at a young age. Parents should create a chore list that the child can earn an allowance for. Have them automatically save 10 to 20% of their earnings — and let them keep the rest for fun purchases or to save for a “wish list” item.
STASHING YOUR CASH
Invest your emergency savings in a principal-guaranteed account that you can access. It requires willpower to not touch an emergency fund, though. That’s why you should set up an automatic deduction from every paycheck to go directly into your savings instrument.
“Rely on the old adage: ‘out of sight, out of mind,’” Edgington says. “It’s much easier to have [these funds] automatically taken out of your paycheck than [moving those funds yourself], as you may be less likely to put it in savings.”
Another recommendation is to stash an unexpected or one-time money windfall, such as a bonus from work, a tax refund or even earnings from a side hustle, into your emergency fund. Since these funds probably aren’t factored into your weekly or monthly budget, it won’t strain your finances.
If you have large debts, the prospect of stockpiling several months’ worth of living expenses may seem daunting or not feasible. For those with debt and/or large expenses, aim for saving a month’s worth of expenses and then, as your budget allows, beef up your cash reserves to cover a longer period of time.
