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 fund should be in a high-yield savings account. Not invested. Not in a CD. Not under your mattress. A HYSA gives you 4-5% interest while keeping the money accessible in 1-2 business days.
At current HYSA rates, a $25,000 emergency fund earns roughly $1,100/year in interest. That's free money for doing nothing except 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 match. 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 Money Milestones Before 35.
