When you do not have a financial safety network, an unexpected medical account, repair of cars or loss of work can affect your mental health and throw your budget for a cycle.
Therefore, experts recommend leaving some money aside in an emergency savings fund. According to a new Vanguard survey, even a modest emergency fund can drastically reduce stress and increase your financial health.
So, what is the magic number for improving financial well -being? And what can you do to achieve it?
Vanguard researchers have researched over 12,400 Vanguard investors to understand the impact of emergency savings on financial well -being. They found that respondents who saved at least $ 2,000 show a 21% increase in financial well-being, while those with a savings cost of three to six months had another 13% increase, even after income reporting, the type of debt and financial assets.
“People with emergency savings have a higher level of financial well-being, spend less time considering and dealing with their finances and are less distracted in work,” says Paulo Costa, a senior behavioral economist.
According to the study, investors without emergency savings report higher levels of financial stress. On average, they spent 7.3 hours a week thinking about and dealing with their finances, compared to just $ 3.7 hours for at least $ 2,000 urgent savings.
Although 2000 dollars are not a large sum, many Americans have even less than in their savings accounts – or nothing at all.
According to our report on the state of savings in 2025, one -third (33%) of Americans could not cover the bills even for one month if they lost their income. In the meantime, only 26% said they had enough savings to cover one to three months costs.
Read more: How much money should I have in an emergency savings account?
If you have competitive financial liabilities such as homes, debt payments, school training, etc., emergency savings may not be a priority. But this is the thing in an emergency: you cannot predict when it will happen, but you can be sure that this will happen at one point. When this day comes, you will be better prepared to cover the expenses, to avoid accumulating debt and to protect your mental health with an emergency fund.
Whether your goal is $ 2000 or $ 20,000, it’s never too late to get started. Here are some best practices for building and maintaining an emergency fund:
Experts usually recommend saving three to six months basic costs in an emergency fund, but the right amount depends on your personal situation. For example, if you have an unstable income, you may want to strive for costs for nine to 12 months.
Also, keep in mind that the amount of money you can save comfortably every month can hesitate depending on how your income and financial obligations change over time. It is important to be flexible when it comes to your savings strategy and to correct it with the development of your financial situation.
Once you have built a nice financial pillow, you may be tempted to immerse yourself in it. But this defeats the purpose of an emergency fund. Be honest with yourself for what a financial emergency is and when it is appropriate to use this money.
If you use your unexpected expense fund, make a plan to recover it. For example, you may decide to set aside some of your next few salaries or temporarily reduce discretionary costs to increase your savings contributions.
It is important to have a clear separation between the money you use for daily transactions and your savings. This means that you need to keep your emergency savings (and any other type of savings) from your check account.
This said that your emergency funds should be easily accessible in a pinch – and ideally earn interest while sitting in the bank. Therefore, a high -yield savings account is a great place to preserve emergencies; Your money remains safe and grow over time, but can be withdrawn when you need.
Read more: The 4 best (and the highest) places to save your emergency fund