The year 2022 was a rocky time for many Americans’ finances due to high prices on essentials such as housing, food and gasoline. Many have had to dip into their emergency savings just to get by.

Financial challenges are bound to persist in 2023, as the likelihood of a recession increases and inflation remains at a 40-year high.

In fact, 2 in 3 Americans don’t see their finances improving this year, and less than half of U.S. adults surveyed report not being able to pay an unexpected $1,000 expense from savings.

Key emergency fund statistics

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  • Saving for emergencies is the main financial goal of 13 percent of Americans in 2023, a Bankrate survey found.
  • Only about 4 in 10 Americans had enough savings to cover an unplanned expense of $1,000, Bankrate reported in 2022.
  • The need for a new plumbing system can be a pricey emergency expense, and a plumbing redo costs an average of $4,080.
  • Minor car accidents are an unplanned expense that may cost up to $3,000 in damages.
  • The average household spends $3,604 on rent, utilities, food and car payments each month, which would need to be covered by an emergency fund if a sudden job loss were to occur.
  • Major, unplanned medical expenses hit 1 in 5 U.S. adults between May 2021 and May 2022, according to the Federal Reserve, and the median amount was between $1,000 and $1,999.

What is an emergency fund?

An emergency fund is money in the bank for the purpose of covering unplanned expenses. It can be your lifeline when faced with surprise home repairs, a big medical bill or a death in the family.

If you’re faced with a sudden job loss, an emergency fund should be able to cover several months of living expenses. These include your rent or mortgage payment, utility bills, food, insurance premiums and transportation.

A healthy emergency fund helps you avoid taking out loans or racking up high-interest credit card debt.

Just 44 percent of Americans say they have enough money saved to cover a $1,000 unplanned expense, and more than half (58 percent) report being concerned about the amount they have in emergency savings.

How much should I save in my emergency fund?

Experts suggest stashing away at least three to six months’ worth of household expenses in an emergency fund.

“That sounds like a lot — and it is — but getting to that goal is a process,” says Amy Maliga, a financial educator with Take Charge America, a Phoenix-based nonprofit credit counseling agency. “If you’re starting from scratch, we recommend an initial savings goal of $500, which is enough to cover many common, smaller emergencies. Once you hit the $500 mark, keep going. Remember, the point of emergency savings is to stay out of debt by avoiding the need to use credit cards for unexpected expenses.”

Here is an example of what one month’s worth of household living expenses might look like:

  • Rent: $2,084
  • Utilities: $315
  • Food: $690
  • Car payment: $515

The total for the above expenses is $3,604. A three-month emergency fund for this example would contain $10,812, while a six-month emergency fund would hold $21,624.

Those who are self-employed may want to save more than three to six months’ worth of expenses to cover times when income fluctuates. Retirees whose income is generated from investment accounts would also benefit from extra savings, as would people with medical issues whose insurance might not fully cover things like surgeries or medications.

Setting aside additional funds could also provide peace of mind for anyone during hard times such as a pandemic or a recession.

Best savings account for an emergency fund

When it comes time to start putting money into an emergency fund, look for a high-yield savings account with few or no fees. High-yield savings accounts are liquid, which means you can quickly access your money when it’s needed.

A money market account that pays a competitive yield could be another good spot for your emergency savings. On the other hand, a certificate of deposit (CD) is not the best place for money you might need in a pinch, since CDs typically lock in your money for a set term. Taking the money out before a CD expires may result in a hefty early withdrawal penalty.

“While it’s great to earn interest on your emergency fund, your primary goal should be to keep the money safe and liquid,” says Scott Schleicher, a financial planning specialist group manager and senior financial advisor at Personal Capital. “Some accounts will have withdrawal limits, restrictions or even hidden bank fees, so just make sure you’re aware of that before moving your money.”

Opening the account at a bank or credit union that’s insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF) will ensure your money is kept safe.

How to restart an emergency fund

Getting back on track with your emergency fund starts with identifying the amount of money you earn and spend each month. Creating a budget, cutting expenses, automating your savings and increasing your income are ways you can ultimately build up your emergency fund.

image of illustrations of piggy bank and scissors to display steps of building emergency fund
Images by GettyImages; Illustration by Hunter Newton/Bankrate;

1. Make a budget

List where your money is going, including line items for things like housing, transportation, food, clothing, entertainment and so on. Making a list will help you identify how much you can add to your savings each month, so a line item for your emergency fund should be included. Determine your emergency fund goal, whether it’s three to six months’ worth of expenses or more.

If you already have a budget document in place, it’s good to reevaluate it periodically, as income and expenses can change over time.

Bankrate’s Home Budget calculator or a budgeting app can make this seemingly daunting process easier by helping you keep track of your spending.

2. Try cost cutting

One way to save money is to streamline your expenses. Identify unnecessary expenses, which could include frequent dining out or coffee runs, unneeded insurance, or unused subscriptions to magazines or streaming services.

“Analyze your monthly spending and find things you want to cut back on,” says Davon Barrett, banker and vice president at J.P. Morgan Private Bank and former lead advisor at Francis Financial. “Too much delivery? Big cellphone, Wi-Fi and cable bills? These expenses are all somewhat easy to reduce or find alternatives for once you’re aware of them.”

In addition to trimming expenses, one way to increase your savings is earning rewards from a credit card. This could be done in a healthy way by putting monthly household expenses or other planned purchases on a credit card.

Types of rewards you can earn with a credit card include cash back rewards and travel points or miles. Whatever rewards you earn, it’s important to only charge things you can pay off when the bill comes. Otherwise, you’ll be hit with interest charges, which can lead to even more expenses each month.

3. Automate your savings

One way to make saving money easier is to set up regular automatic transfers to the savings account that holds your emergency fund. This can often be set up easily using a mobile banking app.

“One of the easiest ways to save money, regardless of your budget, is to make your savings automatic,” says Valerie Moses, a senior relationship manager for Addition Financial Credit Union based in Lake Mary, Florida. “If your employer allows you to direct deposit your paycheck into multiple accounts, set aside a portion of that paycheck to be deposited into a savings account so that this money is out of sight, out of mind.”

You can also set up an automatic transfer of funds from checking to savings each month.

With economic uncertainty running high and a possible recession on the horizon, you’ll sleep better at night the more emergency savings you have tucked away,” says Greg McBride, CFA, Bankrate chief financial analyst.

4. Find ways to earn money

Sean Fox, Chief Revenue Officer at personal finance company Achieve, recommends earning additional income to devote to the fund.

“For example, some people sell unneeded items online or hold a yard sale,” Fox says. “Other people have part-time jobs, provide dog walking services, do yard work, tutor or help with IT services.”

Other possible ways to add to your existing income include:

  • Freelance writing: If you’re adept at crafting prose or knowledgeable on certain topics, writing on a contract basis can be a lucrative gig that might even turn into a full-time job. Not a writer? Think about what other skills you have that might translate well to freelancing.
  • Driving for Uber or Lyft: Driving for a ride-hailing service can provide flexible hours, allowing you to work around other employment.
  • Food delivery: Like ride-hailing drivers, those who deliver food get to choose their own hours when working for services like Uber Eats, DoorDash, Grubhub and Instacart.
  • Babysitting: Watching others’ children can be a lucrative side—hustle for those who enjoy caring for kids and have some experience doing so. Various websites and apps exist for connecting parents with sitters.
  • Pet sitting: Animal lovers can earn some extra money by looking after others’ pets while they are at work or on vacation.
  • Getting a roommate: If you have extra space in your home, consider renting a room to a trusted friend or relative. Be sure to come up with a contract, signed by both parties, that lays out the terms of the agreement.

Side hustle statistics

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  • Nearly half (41 percent) of U.S. adults with side hustles in 2022 needed the extra money for living expenses, a Bankrate survey found.
  • Others reported using money from a side gig as extra spending cash (26 percent).
  • Some people said they put their side hustle income toward savings (17 percent), and others devoted it to debt repayment (12 percent).

Bottom line

Establishing an emergency fund, or rebuilding an existing one, is a key to financial stability. Having money in a liquid savings account will give you peace of mind, knowing you won’t need to go into debt when faced with unexpected expenses.

Creating a budget is key to starting up or rebuilding your emergency savings, since it’ll help you determine how much money you can save each month. Even if you have significant living expenses, you’ll likely find it’s even possible to save money on a tight budget.

One way you can work to build up your emergency fund is to create a savings goal and set a date you wish to reach it. Bankrate’s savings calculator can help you determine how much to put away each month to meet a goal, and it’ll also show how much interest you’ll earn on the money in your savings account.

In addition to having an emergency fund in a liquid savings account or money market, you might consider opening different accounts for other goals. For example, a CD may earn a competitive yield on money you’re comfortable locking in for a set term. Meanwhile, a cash management account is similar to a savings account but also offers some investment opportunities.