Emergency Savings

October 5, 2018
In 2017, 34% of American households experienced a major, unexpected expense – and only 39% of Americans said they would be able to cover even a $1,000 emergency.

Every financial plan should start with an emergency savings – it’s the backbone, foundation, and buttress to your financial future and wellbeing. Imagine trying to build a home without a foundation; it won’t last long. Similarly, you’re not on steady footing if you haven’t got some emergency savings in the bank for a rainy day.

You’ll find a lot of articles out there that say three to six months of your salary is enough for an emergency savings account. But there’s a few problems with that simple theory. The first is that the most common reason people dip into their savings is because they lost a job; in that case, it’s doubtful that three to six months will be enough time to get you back on your feet. Jobs are typically lost unexpectedly and all at once; for example, no one predicted the financial crisis in 2008 or the energy crisis in 2015 that led to nearly 9 million jobs lost. All those people needed work at the same time, and the job market was slim for the picking. The unemployed were left with three choices: accept a job that pays less than what they were formerly being paid, compete with hundreds of applicants for the same type of job they just lost, or, with enough savings, they could spend some time unemployed until they bounced back.

Another problem with the three to six-month rule is that it doesn’t necessarily account for your expenses. Your emergency savings account should be focused on your own personal needs rather than a prescribed value based on your salary. For example, a single 23-year-old won’t have the same expenses as a married 50-year-old with two children in college and a few dogs. Even if they make the same salary, the latter will have more expenses per month, ultimately meaning he will need more money in his emergency savings account.

Here’s a few tips to help you decide the exact number you should expect to need:

  • If you’re already saving for retirement, subtract that from your total net income.
  • Look at the rest of your income, and consider the following: what are your needs, and what are your wants? The two do not always coincide.
  • Once you’ve figured out how much you and your family would needto live on, create a plan to get there.
  • Know your industry. How common are layoffs and how does your industry weather during a recession? This will determine if you need more.


Ultimately, when it comes to emergency savings, thinking in “worst case scenarios” is the best approach. The number is higher than most would expect, but you have to consider what happens if you lose your job, a family member gets sick, or there’s a tragic accident.

The good news is that if you’re still working, you’ve got time left to save up for any emergency that comes your way. Start saving now and you’ll realize how achievable it is. Don’t be satisfied with just three months’ salary in your savings; shoot for an approach focused on your needs over a longer horizon – you’ll be happy you did.

Find an advisor

You don’t have to figure things out on your own. Click below to get matched with an advisor.

Get started →

Retirement Readiness Analysis

Schedule a meeting with a Retirement Plan Specialist find out your retirement income gap and when you can afford to retire.

Schedule now →

A Better Small Business 401(k)

Don’t let your employees pay high fees and get stuck with bad investments. Request a no-cost analysis today!

Request a demo →

Connect with Us

Related Posts



Submit a Comment

Your email address will not be published.

4 + seventeen =

TCG Advisory Services, LLC ("TCG Advisors") is a registered investment advisor regulated by the U.S. Securities and Exchange Commission (SEC) subject to the Rules and Regulations of the Investment Advisor Act of 1940, and is a part of TCG Group Holdings, LLP. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training. We are located in Austin, Texas. A copy of our Form ADV Part 2 is available upon request.

This website is not authorized for use as an offer of sale or a solicitation of an offer to purchase investments. This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

Past performance may not be indicative of any future results. No current or prospective client should assume that the future performance of any investment or investment strategy referenced directly or indirectly in this brochure will perform in the same manner in the future. Different types of investments and investment strategies involve varying degrees of risk—all investing involves risk—and may experience positive or negative growth. Nothing in this brochure should be construed as guaranteeing any investment performance.

This website may contain forward-looking statements and projections that are based on our current beliefs and assumptions on information currently available that we believe to be reasonable; however, such statements necessarily involve risks, uncertainties, and assumptions, and prospective investors may not put undue reliance on any of these statements.