‘This is 100% psychological and practical.’ This is the minimum amount of money you should have in savings, pros say (and psst: it’s less than you might think)

You probably know the emergency fund ‘rule’ — save anywhere from 3-9 months of expenses to cover a potential unexpected expense. And while it’s a great rule to follow, few people actually have that saved — a 2021 GoBanking survey revealed that 40% of Americans have less than $300 in savings — so we asked the pros: If a solid emergency fund feels out of reach for now, what’s the minimum amount of money you need in savings?

Chanelle Bessette, banking specialist at NerdWallet, says you should try to have at least $1,000 on hand. “A small $1,000 emergency fund ought to cover most minor pressing expenses, such as getting new car tires or having to travel for an urgent trip, like to care for a family member in the hospital or to attend a funeral,” says Bessette.

And Charles Lattimer, vice president of innovation and growth at FinFit, seconds the initial goal of saving $1,000. “This is 100% psychological and practical. Psychologically, most working Americans can achieve this goal within several months to a year. Practically, research shows that about 90% of all unexpected emergency expenses can be covered with $1,000,” says Lattimer.

Of course, this $1,000 is a starting point. “The destination is having enough savings to cover 6 months of expenses, but since what constitutes 6 months of expenses is a moving target, what’s most important for households isn’t whether you’ve arrived at the destination, but whether you’re on a savings journey at all,” says Greg McBride, chief financial analyst at Bankrate. (Another thing to consider: You really need six or so months of essential expenses so you could pay all your basic bills, which might make this target a little easier to hit.) 

Why an emergency fund is so important

As the initial stages of the pandemic demonstrated, job loss and income disruption can occur suddenly and with very little warning. “Having an adequate emergency savings cushion is a buffer from high interest rate debt and drastic or desperate lifestyle changes until household income rebounds,” says McBride.

That emergency fund also can prevent you from dipping into monies you’ll need for other reasons. “You don’t want to have to dip into your invested assets or retirement accounts, which would cause taxable issues and potentially force yourself to sell at an inopportune time,” says Stephen Carrigg, certified financial planner and director of investment analysis at Integrated Partners.

How to save for your emergency fund

To start building emergency savings, Anne Marie Ferdinando, member outreach manager at Navy Federal Credit Union, recommends creating a detailed budget. “Your budget will be a helpful guide to keep your spending within certain parameters, but it should specify some savings goals as well. Saving may seem tough right now, but including a reasonable monthly line item to build up your savings account, emergency fund or to contribute to a tax-advantaged retirement account will make a huge difference in the long run,” says Ferdinando.

One place to look: Online savings accounts offered by federally-insured banks and credit unions, which offer safety, while providing access to the money without penalty when it’s needed. “They consistently pay better yields than the savings accounts at most banks and other cash investments such as money funds,” says McBride. “Look for a savings account that has a low minimum initial deposit and no ongoing balance requirement; plenty are available with competitive yields,” says McBride.

Of course, amid rising inflation, having too much in savings also isn’t ideal. “When it comes to finding a savings account, interest rates in general are very low. Certain banks offer better rates than others, but they’re mostly close to 0% which is why we don’t want people to hold too much in cash,” says Carrigg.