How Much Should You Save for an Emergency Fund?

It's a common fact that most Americans live paycheck to paycheck. A single disaster, like the very recent government shutdown, would be enough to make most Americans face very serious consequences in their lives.

A month's loss of paychecks would be enough for most people to lose their home—or come damned close to doing so. It's a scary thought, job loss always is, but it's one that you have to confront. Back during the Great Recession, finding jobs was not easy and it took months for some to find financial stability once more.

Emergencies can happen at any time, to anyone. Even something as small as a car repair can be a major emergency for some of us. So, what are we to do? We all need to save for an emergency fund.

A little money can make a world of difference, but when can you say your emergency fund is good to go? Here's my personal take on this major aspect of personal finance.

If you really think about it, there are two types of emergencies.

It's hard saving money for anything. We want to save for vacations, big purchases, but saving for emergencies is equally important. There are minor emergencies and major emergencies.

A minor emergency would be having expensive car repairs to take care of. A repair might only take $2,000 at most if you have an affordable car model. In most cases, you might only need $500 or so to cover it. That's not too bad.

A major emergency would be something like a job loss or being put on furlough for a month. That can easily cost you thousands for rent or your home alone, plus other important bills like health insurance. You'd need emergency savings in either scenario.

I find that it's best to split these costs when trying to save for an emergency fund.

I don't believe in having a single emergency fund, because it tends to make me overspend when I do have a minor emergency. Having a smaller emergency fund that can cover issues like a late bill and a "DO NOT TOUCH UNDER ANY CIRCUMSTANCE" fund is just plain smart.

Choosing how much to save for each fund makes things way easier on me. When you've got to save money, you ought to be organized with it.

For minor emergencies, I tend to do it by the cost of car repairs or a simple medical bill.

Medical bills are awful, and so are car repairs. They can easily eat away at a bank account if you're not careful. A minor emergency, in my opinion, is all about price and chance.

When I gauge how much I should save, I look up some of the most common issues I get worried about. So, I'll look at a low-cost medical issue like a tooth extraction or a UTI. I may also look for pricey car repairs like a transmission on my car.

These quotes give me a good idea of a likely issue I may run into. I then choose the bigger number of the different quotes I pull. Personally, I aim to save around $2,500 in a minor emergency pool. Opening up a savings account and earning a little interest on that balance helps.

A major emergency is a lot harder to plan for, and the jury is still out on this.

Let's face it, stability isn't what it once was. The job market isn't kind to people the way it once was, and finding a job isn't a given. The Great Recession proved that point, and while the gig economy is strong, it's still not as good as a 9 to 5 for most of us.

On a similar note, the costs of medical care is rising sharply. A major illness won't just make you lose your job; it will likely cause bankruptcy. It's actually the leading cause of bankruptcy in the United States today.

So, how do you plan for a major emergency...? Well, there are a couple of schools of thought on that.

I'm not a fan of this, though. I'll be honest; that advice seems very outdated for today's world.

Three months will come and go in a heartbeat, and it's not always enough to handle during times of extreme turmoil. Heck, there are even some medical bills that are higher than that!

Suze Orman suggests saving at least three to six months for your ultra emergency fund. Some people will even go higher, claiming that nine months to a year may be a better option.

I personally am working on a nine-month savings account.

A lot of how much you need to save for an emergency fund depends on your lifestyle and the industry you work in. If you have a career in a high-paid, high-demand field, you usually will do just fine with only three months of salary.

Folks working lower-paid jobs need to shoot for more, as do people whose careers are in very high-competition fields. Since both situations can drain bank accounts quickly before you are able to get back on your feet, the longer you save, the better you'll be. After all, you should be making money from your money, and the right savings account will help you do just that.

One of the issues I have with a lot of people I know is that they claim they "can't afford to save," because they are working a full-time job. I don't want to hear this. Apps like Stash make it possible to get savings on pretty painlessly by just saving small amounts at a time.

Still feeling the pain too tightly? There are two solutions to this that make your inability to afford things irrelevant. First, you can always get a side gig. Second, you can always apply for better paying jobs.

If you're not advocating for your own better paycheck, you're shooting yourself in the foot.

That being said, don't let the big numbers scare you.

I totally understand feeling overwhelmed by being told that you should have at least $2,000 for a minor emergency. That's pretty terrifying, isn't it? When you have two grand as a large portion of your salary, you might never feel like you can get ahead.

Big numbers are scary, but even the biggest journey on personal finance will need to start with a small amount. Even $100 can make a huge difference in your financial health during an emergency. There are ways to save for an emergency fund on a budget, don't let anyone tell you otherwise.

If you aren't sure where to start, think small and frequently.

A favorite song of mine told me that "everything counts in large amounts." This is so true when it comes to learning how to save for an emergency fund!

Think about it in small terms. $1,500 sounds like a lot in a lump sum. However, if you saved $5 a day for a year, then you would have $1,825 to spare. $5 a day is a simple coffee from Starbucks or a pair of energy drinks.

Saving $5 a day doesn't sound that terrible, does it? Of course not! That alone means that you can start building that savings account at a pretty simple pace.

If you're still not sure how much is enough to save for an emergency fund, assume more is better.

In a world where money is everything, it makes a lot of sense to save as much of it as you can—within reason, of course. The more you save, the safer you are and the more you can rest assured that you can rely on yourself during an emergency.