How big should an emergency fund be?
Enough to cover your essential expenses for a stretch without income: three months if your pay is steady and there are two of you earning, six or more if you're the only earner, self-employed, or paid on commission. It's measured in expenses, not salary, because that's what it has to pay for.
Start with $1,000
If you have debt, a full fund can wait. A $1,000 starter fund covers most car repairs and small emergencies, so a surprise doesn't land on a credit card while you pay the debts down. Once they're gone, the money that went to them builds the full fund quickly.
Where to keep it
Somewhere separate from the account you spend from, so it doesn't quietly become grocery money, but reachable within a day or two. A high-yield savings account does both, and pays a little while it waits.
Questions people ask
How many months should an emergency fund cover?
Three months of essential expenses if your income is steady and there are two of you earning; six or more if you're the only earner, self-employed, or paid on commission.
What counts as essential expenses?
What you'd still have to pay if you lost your income tomorrow: housing, utilities, groceries, transportation, insurance and minimum debt payments. Leave out eating out, subscriptions and extra debt payments.
Where should I keep it?
Somewhere separate from your spending account but reachable within a day or two, like a high-yield savings account. Not invested in the stock market: the point is that it's there when things go wrong.
Why start with $1,000?
A starter fund covers most car repairs and small emergencies, so a surprise doesn't go on a credit card while you pay down debt. Once your debts are gone, you build the full fund.