‘Bad luck finds us all.’ Here’s exactly how much you should have in savings right now (and just how few Americans actually have this amount socked away)

About half (49%) of American adults have either less emergency savings than they did last year, or no savings at all, according to a new Bankrate report. Just 1 in 4 say they have the same amount or more. “It’s clear that the less-than-optimal economy, including historically high inflation, coupled with rising interest rates, has taken a double-edged toll on Americans,” says Mark Hamrick, senior economic analyst at Bankrate. 

That said, this is a great time to turn that around, as many savings accounts are paying more than they have in over a decade, with rates upwards of 4% (see the best savings rates you may get now here). “For those wisely focused on managing and building their emergency savings, this is an opportune time to benefit from the increase in interest rates. Emergency savings, by definition, needs to be liquid or easily accessible. A high-yield savings account dedicated to this purpose amounts to a self-insurance policy guarding against unplanned expenses,” says Hamrick.

Certified financial planner Derieck Hodges at Anchor Pointe Wealth also notes that it is crucial, especially as experts say a recession may happen this year, that we maintain a base of emergency savings. “Eventually, bad luck finds all of us. When we have a financial crisis, the lack of emergency funds erodes our long-term strategies and people dip into retirement plans for withdrawals or 401(k) loans as a stop gap measure — and those choices usually end up with more negative consequences,” says Hodges.

Indeed, because unexpected things happen in life, like cars breaking down and medical emergencies, if you don’t have money saved for a rainy day, you leave yourself with less-than-desirable options that may end up costing you more down the road. Bankrate recently reported that 57% of US adults are unable to afford a $1,000 emergency expense.

“Not everyone can spare to set aside money for emergencies, but if you can afford to sock away a little money each month just in case of an emergency but choose not to, you’re basically playing a game of chicken with your finances,” says certified financial planner Taylor Jessee at Impact Financial.  (See the best savings rates you may get now here.)

How much do you need in emergency savings? 

Experts generally agree that it’s wise to have between 3 and 9 months’ worth of essential living expenses stored up in an emergency savings account. “If you spend $5,000 per month on mortgage, rent, food, utilities, your target emergency savings should be between $15,000 and $45,000,” says Jessee. 

While these numbers can sound intimidating, and for some unrealistic, you should try to have something tucked away, even if it’s just a few hundred or a few thousand dollars. “At the end of the day, if and when an emergency strikes, you’ll be glad you had at least a little something set aside versus nothing at all,” says Jessee. 

But how do you know if you need 3 months or 9 months of savings? Certified financial planner Alexis Hongamen at Total Financial Planning says a dual-income couple with steady jobs can probably get by with 3 months of cash on hand, while a single person is better off with a 6-month emergency supply of money.

“If you’re relying on a single income and have a highly specialized profession, it may take you longer than 6 months to find suitable employment. Think about 9 months or even a year’s worth of expenses if you’re in that situation,” says certified financial planner Brad Nelson at Point Loma Advisors.

Once you’ve determined the amount you need to save, certified financial planner Mark Humphries at Sentinel Financial Planning, says you should determine how much money you can afford to live on without pay and put that money into a savings account. “Once you’ve reached your target amount, you can shift the saving amount to something else like an investment account to begin building wealth,” says Humphries.

It’s also important to remember that your emergency savings account should not be in a 401(k), IRA, or long-term investment account. “There are strict penalties for taking early distributions from a retirement account and your emergency fund should ideally not be in a brokerage account either because of how volatile the stock market is. Imagine getting a $1,000 repair bill after your car breaks down unexpectedly. What if that $1,000 you had saved up for emergencies was invested in stocks and the market was down 20% at the time you needed it,” says Jessee. Keep your emergency savings in something conservative and stable like a savings or money market account. (See the best savings rates you may get now here.)