There's a reason it's so important to save up for emergencies. You never know when life might throw you a curveball, and if you're not prepared financially, you could instantly land in debt or face other disastrous consequences. For example, if you were to lose your job and fall too far behind on your mortgage payments, you'd potentially risk losing your home.
If you're sitting on $10,000 in your savings account, you might assume you're all set as far as your emergency fund is concerned. After all, that is a lot of money. But while $10,000 may be an appropriate emergency fund for some people, that may not be the case for you.
It's all about your personal expenses
You should aim to have enough money in your emergency fund to cover three to six months of essential living costs. Those include things like rent or mortgage payments, utilities, healthcare expenses, and food.
If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance. But if you typically spend $5,000 a month on essentials, which may be the case if you're a higher earner or have a large family, then $10,000 may not be adequate to buy you the protection you need.
In the event of job loss, for example, $10,000 in savings would cover two months of bills. But what if you work in a specialized field and it takes twice that much time to find a new job? In that case, you might easily blow through your savings and still be left in the lurch.
That's why you shouldn't set a random target for your emergency fund. Instead, you should base it off your personal expenses, and you can use an emergency fund calculator to figure out your specific savings needs.
Three months, six months, or somewhere in between?
For some people, three months' worth of essential living costs is a good emergency fund. For others, six months' worth of expenses is more appropriate. How do you know which end of that range you should aim for?
There's no single answer, so think about your financial situation. If you're married and both you and your spouse work, you may be okay with three months' worth of essential bills tucked away in savings, because if one of you were to lose your job, the other might still manage to bring in an income. On the other hand, if you're the sole breadwinner in a larger household, you may want to think about aiming for six months of expenses in the bank.
Similarly, if you're self-employed, you're generally not entitled to unemployment benefits in the event of job loss. In that situation, you may want to err on the side of saving more, even if you don't have any dependents.
Either way, run the numbers based on your specific bills to figure out a savings goal. You may end up landing on $10,000 -- but don't assume that if you've saved that much, you're automatically set.
FAQs
It's all about your personal expenses
Is having 10k in savings good? ›
There's nothing wrong with keeping $10,000 in a savings account. But it might not earn you the highest yields. CDs and brokerage accounts could be better homes for your cash in some situations.
How much money should I have in savings for emergency fund? ›
So if you spend $5,000 per month, your first emergency fund savings milestone should be $2,500 to cover spending shocks. For your longer-term goal of an emergency fund that will cover income shocks, aim to save $15,000 to $30,000 total.
Should your emergency fund be in a separate savings account? ›
Because an emergency can strike at any time, having quick access is crucial. So it shouldn't be tied up in a long-term investment fund. But the account should be separate from the bank account you use daily, so you're not tempted to dip into your reserves.
Is 10k a lot of cash? ›
For most, $10,000 is a lot of money. Typically, that amount of money doesn't just appear out of thin air without some financial strain. However, if you think about $10,000 as saving a little over $27 each day, it becomes much more realistic.
How many people have over 10k in savings? ›
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
The first thing you might wonder is whether it's even safe to keep that much cash in a savings account, and it definitely is. All reputable savings accounts carry up to $250,000 of Federal Deposit Insurance Corporation (FDIC) insurance per person, per bank, per ownership category.
Is $10,000 too much for an emergency fund? ›
Those include things like rent or mortgage payments, utilities, healthcare expenses, and food. If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance.
Is 20k too much for an emergency fund? ›
A $20,000 emergency fund might cover close to three months of bills, but you might come up a little short. On the other hand, let's imagine your personal spending on essentials amounts to half of that amount each month, or $3,500. In that case, you're in excellent shape with a $20,000 emergency fund.
How much emergency fund should I have Suze Orman? ›
“Every family should have an emergency savings account that can cover at least eight months of living expenses,” Orman wrote in a post on Oprah.com.
Bank or credit union account — If you have an account with a bank or credit union—generally considered one of the safest places to put your money—it might make sense to have a dedicated account where you can keep and maintain these funds.
What is the best savings account for emergency fund? ›
Best places to keep your emergency fund
- SoFi Checking and Savings: up to 4.60% APY (annual percentage yield)
- Discover® Money Market: 4.00%-4.05% APY.
- CIT Platinum Savings: 5.00% APY for balances of $5,000 or more APY.
- Ally Money Market Account: 4.20% APY.
Where Is the Smartest Place to Keep Money?
- High-yield savings accounts.
- Certificates of deposit (CDs)
- High-yield checking accounts.
- Money market accounts.
- Treasury bills.
According to data from the Census Bureau, the median household income in the U.S. is approximately $71,000. To reach the top 20% of earners, an individual would need to earn nearly double this amount, averaging around $130,545 per year.
How much is too much in savings? ›
So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account.
What is the 10000 cash rule? ›
Who must file. Federal law requires a person to report cash transactions of more than $10,000 by filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
How much interest will $10,000 earn in a savings account? ›
The Bankrate promise
| Type of savings account | Typical APY | Interest on $10,000 after 1 year |
|---|
| Savings account paying competitive rates | 5.25% | $539 |
| Savings account paying the national average | 0.58% | $58 |
| Savings accounts from various big brick-and-mortar banks | 0.01% | $1 |
Apr 2, 2024
Rule of thumb? Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
How much should a 20 year old have saved? ›
By prioritizing saving in your 20s, you can capitalize on the power of compounding interest and make the several decades you have before retirement work for you. In addition to saving for retirement, consider building an emergency fund, where experts recommend holding three to six months' worth of living expenses.
What should I do with 10k saved up? ›
Pay off high-interest debt
If you "invest" your $10K to pay off the debt instead, you'll save that $5,236, effectively earning an annualized return of about 11% in the process. Consolidation loans or balance transfer credit cards are good financial tools to help you achieve that goal.
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