Emergency fund targets by situation: Stable job (W2, established company): 3-6 months expenses.

Variable income (commission, freelance): 6-9 months.

High-risk factors (single income, health issues): 9-12 months.

Based on $60k annual income ($5k/month): Essential expenses $3k/month → 3 months = $9k minimum, 6 months = $18k recommended, 9 months = $27k conservative.

Include only essential expenses (housing, food, insurance, utilities, debt payments), not discretionary spending.

Base emergency fund on EXPENSES, not income.

Income can be misleading if you save significantly or have high discretionary spending.

Calculate essential monthly expenses: housing (rent/mortgage), utilities, food, insurance, minimum debt payments, transportation.

Example: $80k income but $4k essential expenses = need $12k-24k fund (3-6 months × $4k), NOT $20k-40k based on income.

If expenses = 60% of income, fund can be 40% smaller than income-based calculation.

High-yield savings account (HYSA) is optimal for emergency funds in 2025.

Current rates: 4-5% APY at online banks (Marcus, Ally, Capital One) vs 0.01-0.5% at traditional banks.

Requirements: FDIC insured (up to $250k), no monthly fees, instant access (no CDs or investment accounts), separate from checking to avoid temptation.

On $20k emergency fund: HYSA at 4.5% = $900/year interest vs regular savings at 0.5% = $100/year.

Consider splitting large funds: $10k instant access HYSA + $10k in 3-month CD ladder for slightly higher yield.

Timeline depends on savings rate.

For $18k goal (6 months × $3k expenses): Save 10% of $60k income ($500/month) = 36 months.

Save 15% ($750/month) = 24 months.

Save 20% ($1000/month) = 18 months.

Accelerate with: tax refunds, bonuses, side income, selling items, temporarily cutting discretionary spending.

Milestone approach: Month 1-6: Save $1k starter fund.

Month 7-12: Reach 1 month expenses.

Year 2: Build to 3 months.

Year 3+: Reach full 6 months.

Stop regular contributions when reaching target months of expenses (typically 3-6 months), but continue in these situations: Major life changes pending (marriage, baby, house purchase) - increase to 9-12 months.

Job market uncertainty - add 3 months buffer.

Health issues - add medical out-of-pocket maximum.

After reaching target: Redirect savings to high-interest debt (>7%), retirement accounts (401k match, IRA), investment accounts, or other financial goals.

Annual review: Adjust for inflation and lifestyle changes (3-5% increase per year).

$10,000 adequacy depends on monthly expenses.

Sufficient if: Monthly expenses ≤$2,000 (covers 5 months), single/no dependents with low costs, stable job with good benefits, additional resources available (family support, home equity).

Insufficient if: Monthly expenses >$3,333 (less than 3 months coverage), family/mortgage/high fixed costs, variable income or job insecurity, no other financial cushion.

Average US household needs $15k-25k (3-6 months of $5k average expenses).

Calculate YOUR needs: List essential monthly costs, multiply by months of coverage needed.