How we calculated your number
The standard advice is 3-6 months of expenses. But the right number depends on your situation.
Dual income, stable jobs: 3-4 months. If one person loses a job, the other covers basics while you job search.
Single income or moderate stability: 5-6 months. One job loss means zero income. You need more runway.
Variable income (freelance, commission, startup): 6-8 months. Income is unpredictable. Your fund covers the gaps between good months.
Where to keep it
Your emergency fundEmergency fund:Cash set aside for job loss or big surprise bills, kept somewhere safe and easy to reach, such as a high-yield savings account.Learn more → should be in a high-yield savings accountHigh-yield savings account:A savings account, usually at an online bank, that pays more interest than a standard savings account. FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category.. Not invested. Not in a CD. Not under your mattress. A HYSA pays more interest than a standard savings account while keeping the money reachable in a day or two, and it is FDIC-insured up to the limit.
At a 4% rate, a $25,000 emergency fund earns about $1,000 a year in interest. Rates move with the Fed, so check what banks are paying today. It's free money for parking your cash in the right account.
The priority order
Build your emergency fund in stages. Don't try to save $25,000 before doing anything else with your money.
Stage 1: Save $1,000 as fast as possible. This covers small emergencies (car repair, urgent medical copay) and stops you from putting them on a credit card.
Stage 2: Get your employer's full 401k matchEmployer match:Money your employer adds to your 401(k) when you contribute, for example 50 cents for every dollar up to 6% of pay. Not contributing enough to get the full match leaves part of your pay unclaimed.. This is free money that beats any savings account return.
Stage 3: Build to your full target (the number above) at a steady pace. Automate the transfer so it happens without thinking.
For the full priority sequence, see the new dad money checklist. An emergency fund covers a job loss; it does not replace life insurance, which covers the income your family loses if you die.
