Prior to the Covid-19 pandemic, approximately 30-50% of adults in the United States (depending on the study) would struggle when faced with an unexpected or emergency expense. While the percentage of affected adults improved with the arrival of COVID relief programs, recent data shows that the numbers may be trending back down toward pre-pandemic levels. The aggregate data will continue to show these fluctuations over time depending on the macroeconomy, significant policy changes, etc., so a more immediate question for consumers is: How much do I need in my emergency savings account? $400…$1,000…3-6 months of expenses? The answer is not concrete and completely depends on your own personal situation, but here are some things to consider:
- How large is your household? – the necessary living expenses for a single individual will likely look much different than a household of four.
- Do you own a home or rent? – homeowners face the risk of repair costs, which increases their need for emergency savings. The recent derechos are a perfect example.
- What are your insurance deductibles? – this is an often-overlooked aspect of emergency savings. Auto insurance deductibles tend to be around $250 or $500, while health insurance and homeowner’s insurance deductibles could be in the thousands. A higher deductible provides lower premium costs, but does increase your need for emergency savings.
- How stable is your income? – are you self-employed or an independent contractor? Do you work in a high-turnover industry or face occasional government shutdowns? How likely you are to need those savings to make up for lost income should also factor into the amount saved.
This is not meant to be an exhaustive list, but rather a starting point for your emergency savings plan. For the DIY-ers, I encourage you to utilize PowerPay, Utah State University Extension’s free, online, personal finance tool to create your emergency savings plan; otherwise, you can contact your local Iowa State University Extension and Outreach Financial Educator for a free, confidential, 1:1 Financial Consultation!