Minimum amount of cash to have in an emergency fund

Setting aside at least $400 in savings has long been recommended as an initial savings goal by personal finance experts. Indeed, for years, $400 has been a benchmark emergency expense used in the Federal Reserve’s annual survey of household economics.

However, this amount “has not kept up with the reality of the cost of these emergency expenses”, explains Anuj Nayar, head of financial health at LendingClub.

The average cost of an unplanned expense has risen to around $1,400, according to a new survey from financial services firm LendingClub and financial news site PYMNTS.

For that reason, aiming for a minimum of $1,400 in emergency savings is probably a more useful starting goal than $400, Nayar says. From there, financial planners generally recommend saving enough to cover three to six months of expenses.

Emergency savings are important because when unexpected expenses arise, many people who run out of short-term cash end up relying on high-interest credit cards that can compound their debt, Nayar says.

When emergency expenses arose for survey respondents, 48% used credit cards or other means of financing, such as borrowing money from family members, selling assets or loans on salary. Among those who use a credit card, 18% have a balance beyond the due date of their next payment.

And these expenses are almost guaranteed to arise at some point. About half of respondents reported one or more emergency expenses in the three months preceding the survey, which was based on 4,006 balanced census respondents.

“Almost every one of us will have an unexpected expense in the next six months,” says Nayar. “And you usually have no choice – you just have to find a way to pay it, right away.”

However, since so many Americans struggle to save, “any savings cushion” is better than no cushion at all, Nayar says. Start with whatever you can.

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