Is $8,500 Enough for Your Emergency Fund?

The quick answer? It depends.

It's an unfortunate truth that many Americans aren't prepared to handle unexpected expenses. A 2021 Federal Reserve study found that 32% of Americans don't have enough money in savings to cover an unplanned $400 expense. But in a recent survey by NY Sports Day, 56% of respondents said they have an emergency fund, with the average balance being $8,525.

Now the reality is that that figure may not be representative of the U.S. population on a whole, since it's derived from a limited sample set. And also, it could very well be that in the aforementioned survey, a few people with stronger emergency funds pulled that average upward. But while an average emergency savings balance in the ballpark of $8,500 might seem robust, it actually may not be enough for you.

How much do you need in emergency savings?

It's easy to land on a nice, round number and decide that you're all set for emergencies. You might, for example, sock away $10,000 in the bank and call yourself done in that regard.

Now a $10,000 savings balance is certainly impressive, and if you worked hard to accumulate that sum, you should really be proud. But that doesn't guarantee that $10,000 is enough to get you through a personal financial crisis.

As a general rule, you should aim to have enough money in your emergency fund to cover at least three full months of essential expenses. And three months is really the minimum. Many financial experts will tell you to save enough to cover six months' worth of bills, while some will advise to have as much as a year's worth of bills tucked away in savings.

Now, let's say you have an $8,500 emergency fund but spend $3,500 a month on essential expenses like your mortgage payment, auto loan payment, food, health insurance, and utilities. That means you're actually $2,000 shy of being able to cover three months of essential bills. And so in that case, it's a good idea to do what you can to boost your cash reserves to at least reach that three month mark.

Why are emergency funds measured in terms of months? The logic is that if you lose your job, you'd want to replace your income for a while until you're employed again.

But you don't just need an emergency fund for joblessness purposes. What if you own a home and need a new roof? Without savings, that repair might land you in serious debt. So it's important to have money to tap at a moment's notice.

Run your own numbers

If you're not sure how well your emergency fund stacks up, run through your essential monthly expenses and see what they total. Then, multiply that number by a minimum of three. Or you can check out an emergency fund calculator.

If you have enough money in the bank to cover your bills in full for three months, you're in good shape to start off with. That doesn't mean you shouldn't make an effort to boost your savings beyond that point, but you don't necessarily need to start slashing expenses to an extreme to make that happen.

On the other hand, if you spend $2,500 a month on essential bills and only have $3,000 in savings, you may need to push harder to boost your cash reserves. That could mean curbing non-essential spending for a while or getting a second job.

The last thing you want is to leave yourself vulnerable to an unplanned expense. Checking up on your emergency fund and boosting it as needed could prevent that from happening.