Only 1 in 4 Americans Have an Emergency Fund That Can Cover More Than 6 Months of Expenses. But Do You Need That Much Savings?

You never know when you might be on the receiving end of an unplanned bill that your regular paycheck can't cover, whether it's a home repair, a car repair, or an invoice for medical care. That's why it's so important to have money in your savings account at all times.

Without an emergency fund, you could end up having to resort to costly credit card debt to cover a bill you weren't expecting. The result? A lot of wasted money on interest.

Recent data from Webster Bank finds that 57% of Americans consider saving for emergencies a top financial priority. But unfortunately, a good 31% of Americans don't have emergency cash reserves. And only 23% have an emergency fund that could cover more than six months of expenses.

But does your emergency fund really need to cover upward of six months' worth of bills? Or are you okay if you save less?

The general convention

For years, the general advice that's been doled out in the context of emergency savings is to sock away enough money to cover three to six months of essential bills. The logic is that in the event of a lost job, that sum will, in many cases, tide someone over until they're able to find work again. A sum that large will also, in many situations, suffice in covering an unplanned home repair, car repair, or medical bill.

It's worth noting that some financial experts have changed their tune on emergency savings in the wake of the COVID-19 pandemic and now encourage workers to set aside up to a year's worth of essential bills in the bank. That's not bad advice, but it may be overkill for some people -- and it may put an undue amount of pressure on you.

If you're someone who's part of a dual-income household, a three- to six-month emergency fund should generally suffice, because even if one of you loses a job, chances are, the other will remain employed. This assumes, however, that you don't work for the same employer or in the same industry. It also assumes you're an employee who's eligible for unemployment benefits (and possibly severance pay) in the event of a layoff.

To be clear, in this situation, you could save more than six months' worth of expenses if that's what you need for your own personal peace of mind. But you may be perfectly okay with a savings balance that can cover half a year of expenses. And if you're sitting on, say, a three-month emergency month, that's not necessarily something to stress about, because you're still pretty well protected.

When it pays to save more

While a three- to six-month emergency fund should suffice for most people, some workers can benefit from saving beyond that point and socking away up to a year's worth of expenses. If you're self-employed, you're in this category. That's because your income may be variable to begin with. And depending on your line of work, in a recession, you may be the first expense your clients drop.

Also, when you're self-employed, you're generally not eligible for unemployment benefits. And you're certainly not entitled to severance pay because you're not anyone's employee. So it's good to have that extra protection.

Another scenario where you may want more savings is if you work in a niche industry or have a very unique job that isn't easy to replace. If you're a bookkeeper, chances are, you'll find work in a reasonable time frame if your employer has to let you go. If your job is to source coffee from far-off locations and put import contracts into effect, that's a harder position to replace, which warrants more savings.

All told, it's not surprising to learn that only about 1 in 4 Americans have more than six months' worth of expenses in savings. But if you have three to six months' worth of expenses in the bank, don't assume you're in a bad spot.

However, if you have no emergency savings, you'll want to make an effort to build some ASAP, whether by cutting your spending or getting a second job for a while. You never know when you might face a hefty bill or layoff, so it's important to always be prepared.