How much money it takes to be comfortable with emergency savings

Having ample cash set aside can help prevent an unexpected emergency from turning into a financial catastrophe.

But when it comes to emergency savings, more than half of Americans — 57% — are uncomfortable with the level of money they have set aside, according to a new Bankrate survey.

Of those respondents, one-third are very uncomfortable, the May online and phone survey of 1,025 respondents found.

To feel comfortable with their amount of cash on hand, most respondents — 88% — said they need enough funds to cover at least three months of expenses, up from 72% who said so in 2019 when Bankrate last asked the same question.

Almost two-thirds of respondents — 64% — said they would need enough cash to cover six months of expenses in order to feel comfortable.

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However, less than half — 48% — have enough cash set aside to last three months. Meanwhile, 22% have no emergency savings at all, the survey found.

“The progress on increasing emergency savings continues to come at a snail’s pace, despite a widespread recognition among Americans that they don’t have enough savings and that they’re not comfortable with what they have,” said Greg McBride, chief financial analyst at Bankrate.

The Covid-19 pandemic helped raise awareness about the importance of having cash set aside.

While government aid helped boost bank account balances, those cash cushions have eroded amid above-average inflation and higher costs on debt.

As of the first quarter, U.S. credit card debts totaled nearly $1 trillion, according to the Federal Reserve Bank of New York.

Surveys regularly ask people whether they would be able to handle an emergency expense. Unfortunately, the answers typically show many people would come up short.

Most adults — 57% — cannot afford a $1,000 emergency expense, a Bankrate survey from earlier this year found.

In 2022, only 63% of all adults could cover an unexpected $400 expense, down from a high of about 68% in 2021, according to a recent annual Federal Reserve report on economic well-being of U.S. households.

When it comes to having ample emergency cash, three months’ expenses is a good first hurdle, experts say.

But having even more money on hand can help cushion the blow of an unexpected expense or income gap. Savers should aim to have at least three to six months’ expenses set aside in an account you can easily access, experts say.

“It’s the first line of defense of recovering from a job loss and finding employment again,” Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York, recently told CNBC.com. Boneparth is also a member of CNBC’s Advisor Council.

Respondents to Bankrate’s new survey indicated six months’ savings was their sweet spot, McBride said.

“That is the lion’s share threshold that people picked in terms of a point people would feel comfortable with their savings,” McBride said.

However, if you are a sole breadwinner or sole business owner, you probably need more than six months’ savings to cover lost income, he said.

For those just getting started on building their emergency savings, setting aside enough cash to cover three to six months or more in expenses may sound daunting.

But the best way to start is just to get in the habit of setting money aside.

Setting up automatic contributions can help ensure money is set aside before it can be spent. Over time, that can add up.

“Automating it is really the way to make it happen,” McBride said.

As interest rates rise, savers are now getting a better return on their cash — potentially as high as 5% or more — than they have in 15 years, he noted.

“When you start seeing some meaningful interest accumulate, it … helps sustain that effort to save or inspire some creativity to increase your saving,” McBride said.