Americans' emergency savings dwindling—how much is left?

The Importance of an Emergency Fund in Today’s Economy

Having an emergency fund set aside for unexpected expenses has long been considered an essential financial goal. However, recent data suggests that many Americans are not keeping up with this important practice. In fact, one in three Americans say they don’t have an emergency fund at all. According to a survey conducted by budgeting app Empower in June, the median amount saved for emergencies is $500 — a decrease from the $600 reported a year earlier.

This decline in emergency savings highlights growing financial uncertainty among households. Rising prices and inflation have placed additional strain on personal budgets, making it harder for people to build and maintain these crucial financial buffers. Even higher earners are not immune to this trend. A survey by BlackRock found that full-time employees who contribute to retirement accounts like 401(k)s and have at least $5,000 in their retirement savings report holding a median of $20,000 in emergency savings — a drop of $5,000 compared to the previous year.

How Much Should You Save?

Financial advisors typically recommend having three to six months’ worth of expenses saved in an emergency fund. For example, if your monthly expenses total $3,000, you should aim to save between $9,000 and $18,000. However, this target can feel overwhelming for many individuals.

Alyson Basso, a certified financial planner with Hayden Wealth Management in Middleton, Massachusetts, suggests starting with a more manageable goal. “When planning for an emergency fund, it’s essential to strike a balance between ambition and practicality,” she said. Basso recommends saving enough to cover just your essential costs for three months, as many non-essential expenses can be cut during a true emergency.

Even a smaller amount can make a significant difference. A May study by investment management company Vanguard found that having at least $2,000 in emergency savings can lead to better financial well-being. Among over 12,000 Vanguard investors, those with at least $2,000 in emergency savings had financial well-being scores that were 21% higher than those without. This increase was the largest boost linked to financial factors measured by the study.

Individuals who had both $2,000 and three to six months’ worth of expenses saved in their emergency fund saw an even greater improvement, with financial well-being scores rising by 34%. Financial well-being was measured using the Consumer Financial Protection Bureau's well-being questionnaire.

The Benefits of Having an Emergency Fund

People with emergency savings tend to experience a higher level of financial well-being. They spend less time worrying about their finances and are less distracted at work, according to Paulo Costa, senior behavioral economist at Vanguard and co-author of the study. “Having an emergency fund provides a sense of security and stability that can positively impact both personal and professional life,” he said in a press release.

Building an emergency fund doesn’t have to be a daunting task. Start small, focus on your essential expenses, and gradually increase your savings over time. Even a modest amount can provide peace of mind and help you navigate unexpected financial challenges.

If you’re looking to improve your financial knowledge and build a stronger personal brand, consider enrolling in online courses or joining professional communities. There are plenty of resources available to help you grow your network, enhance your skills, and create a digital presence that stands out.