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Does Your Emergency Fund Cover These 8 Expenses?

By Catherine Brock - Updated Dec 2, 2019 at 10:59AM

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It's likely you've overlooked at least one of these.

Being in a financial pickle, out on a limb, or even up the creek is no fun. And it's especially problematic when you don't have the cash on hand to buy a ticket back to solid ground.

According to Bankrate's Financial Security Index survey, only 39% of Americans have $1,000 on hand to cover financial emergencies. The same survey indicated that even $1,000 wouldn't be enough -- because financial disasters cost, on average, at least $2,500.

So how much do you really need in an emergency fund? Experts say your emergency cash balance should be enough to cover three to six months of living expenses. If you live by credit card charges and automatic bill pay, you might not have a clear picture of your monthly outlay for necessities. So grab a pen and paper now, and let's go through the eight expenses your emergency fund needs to cover.

Woman adding up living expenses.

Image Source: Getty Images.

1. Housing

Housing is the most obvious, nonnegotiable living expense to include in your calculations. Things get tricky, though, if you have housing-related bills that you pay only once a year. Say you lose your job in November and your property tax is due in December. Would you have enough on hand, without your paycheck coming in, to cover that bill?

You can plan for that scenario by dividing your annual housing expenses by 12 and budgeting for them monthly. If your annual property tax bill is $2,400, for example, set aside $200 per month just for the property tax. And keep saving that extra $200 monthly even after you reach your target emergency fund balance.

2. Utilities

You need to keep the water and power on at your place. Add up what you spend monthly on gas, electric, and water. Don't forget about the trash bill and other sources of energy you use, such as propane.

3. Communication services

Communication services include your phone, internet, and cable bills. If you've lost your job, you can't risk having your phone shut off. But you could downgrade your data plan temporarily to save on cash. Check with your cellular provider for a baseline cost to keep your phone number functional.

Consider whether you could go without the internet and cable at home. Shutting down your internet service temporarily might be an option, as long as you don't work remotely. And cable is, in most situations, a luxury you can do without. An exception might be if you'll incur costs for canceling and then reactivating the service later. Check your contract for details.

4. Auto and home insurance

Your auto and homeowners insurance policies have to stay active, too. If you don't pay these premiums monthly, treat them as you would the property tax bill: Calculate the monthly portion of the expense and budget it into your living expenses.

5. Health insurance premiums

It's easy to overlook health insurance premiums as a living expense if they're deducted directly from your paycheck. But sadly, job loss is a situation the emergency fund may need to address. And going without health coverage even temporarily is a risky proposition.

When you lose coverage due to a job loss, you have two options. You can continue with your employer-sponsored plan through the Consolidated Omnibus Budget Reconciliation Act (COBRA), or you can purchase a plan through the Health Insurance Marketplace.

COBRA might seem like the simplest option, but it'll cost you. Your cost will be your total healthcare premium, plus a 2% service charge. Since most employers cover part of your healthcare premium, COBRA will cost you much more than what's currently deducted from your paycheck. To get an estimate for your COBRA premiums, check with your health plan administrator.

You can estimate the cost of Marketplace insurance at You might even qualify for discounts based on your income level.

You do have 60 days after loss of coverage to decide which healthcare route you'll take. If you opt for a COBRA plan, you'll owe premiums from the day your other coverage lapsed -- even if you take the full 60 days to decide. You will be covered retroactively, too.

If you choose a Marketplace plan, your coverage starts on the first day of the month after you select a plan, assuming you've paid the premium.

6. Transportation

Your monthly transportation expenses include car payments, public transportation fees, and gas. Review your credit card statements to understand what you're spending on gas each month. For greater transparency on your gas costs -- and possibly some loyalty perks -- you could also switch to a gas credit card for these purchases only.

7. Minimum debt payments

Beyond your house and car payments, your emergency fund has to cover minimum payments on credit cards and other debt. If you delay paying these bills because cash is tight, you'll rack up late fees and extra interest charges. It's not worth it.

8. Food

If you're not on a tight food budget today, your monthly spending in this category is probably overstated. In other words, in the face of a financial emergency, you might spend a lot less on food than you do today.

According to the Bureau of Labor Statistics, the average American spends $7,923 on food each year, but $3,429 of that, nearly half, is for dining out. Annual average spending on groceries alone is $4,464, which works out to 5.7% of average, pre-tax income. You could use those numbers as guidelines for emergency fund purposes, but be prepared to make a lifestyle change if you like to eat out.

Add it all up to make sure you're covered

Once you start crunching numbers, you might find that your emergency fund doesn't exactly cover everything it should. Address it now so you have a path back to solid financial ground if disaster strikes. And every time you do dip into that emergency fund, make it a priority to fill it back up as soon as possible. It's always better to be prepared. 

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