3 Signs Your Emergency Fund Will Fail You

by Maurie Backman | Published on Nov. 13, 2021

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If these things apply to you, you may not have adequate cash reserves.


Key points

  • Having too little money in emergency savings could mean failing to cover surprise expenses.
  • Here are some signs that your emergency savings may be underfunded, and how to remedy that.

You never know when you might lose your job or encounter an unplanned expense that can't be put off, like a car repair. That's where emergency savings come in. But if these signs apply to you, it may be that you don't have a strong enough emergency fund to meet your needs.

1. You've saved an arbitrary amount of money

Some people land on a nice round figure to put into savings for emergencies, like $1,000, $2,000, or $5,000. But actually, there's a calculation that should go into determining what your emergency fund looks like. It involves taking your essential monthly expenses and multiplying that figure by three to six, depending on how much protection you want to give yourself.

Having $1,000 or $2,000 in the bank for emergencies is far better than having no money at all. But if you typically spend $2,500 a month on essential expenses, then $1,000 isn't going to cut it if you're laid off at work and your unemployment benefits cover less than half of your old paycheck once they start rolling in. That's why you should base the amount of savings you need on what your specific bills look like.

2. You haven't accounted for increased expenses

It may be the case that you used to spend $2,500 a month on essentials. But are you spending more now? These days, inflation is causing the cost of pretty much every daily expense, from groceries to gas, to rise. And so the $2,500 you'd normally spend on basics may now look more like $2,600.

In fact, one good rule of thumb with your emergency fund is to keep checking up on your expenses to make sure the amount you have saved is adequate. As your expenses evolve, you may need to add money to your savings to keep up.

3. You keep dipping in but not replenishing

The whole point of having an emergency fund is to have money on hand when unexpected bills strike. And if you have to dip into that account to cover those bills, you may not be in a position to repay yourself right away. But if you keep having to take emergency fund withdrawals and you don't make an effort to replace that money, you could land in a situation where you don't have enough cash in a pinch.

Rather than risk that, keep a record of every withdrawal from savings you take, and then come up with a plan to put that money back in time. You may need to cut back on spending for a few weeks to put back a $100 withdrawal for a surprise medical bill your paycheck couldn't cover. Or, you may need to pick up a side job to replace the $500 withdrawal you took to fix your home's heating system.

If you already have an emergency fund, you're in better shape than the many people who have no money socked away for unplanned bills at all. At the same time, it's important to have an emergency account that's reflective of your needs and adequately funded. If these things apply to you, it pays to give your emergency fund a little more attention -- and do your best to pump more money into that account as you're able to.

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