Saving enough to cover three to six months of living expenses is long-standing financial guidance. But that target can feel unattainable — particularly if you’re already struggling to pay for basics.
Still, if that benchmark seems so distant that you give up on saving entirely, a recent study questioning that guidance might offer some relief.
Economists Jorge Sabat and Emily Gallagher recently released a paper proposing a minimum emergency cushion for low-income households of $2,467 — roughly one month’s worth of expenses for someone earning $30,000 a year.
Stashing away more is beneficial, but Sabat and Gallagher’s research indicates every extra dollar yields diminishing returns in lowering the chance of encountering financial distress.
The study, titled “Rules of Thumb in Household Saving Decisions,” examined households in the bottom 30% of the income distribution — groups that typically have smaller cash cushions and are more likely to turn to costly borrowing when an unexpected expense arises. The authors analyzed data from the U.S. Census Survey of Income and Program Participation, which collected financial details from 70,000 households between 2009 and 2011.
That $2,467 figure isn’t a one-size-fits-all solution for every low-income family. Specific household circumstances and unique needs may call for a larger reserve. The paper notes that single-mother households and families without health insurance should aim to save an additional $1,000.
It’s also worth underscoring that the amount Sabat and Gallagher put forward is a floor for emergency savings.
“Our estimates should not be interpreted as an optimal savings level,” the study cautions.
Consider this: You might manage a $500 auto repair, yet $2,467 likely wouldn’t stretch far enough if you lost your job for several months.
Although a three- to six-month emergency stash is the conventional suggestion, Sabat and Gallagher aren’t alone in proposing a smaller immediate target. Financial commentator Dave Ramsey encourages followers to first save $1,000 as a starter emergency fund, then tackle debt and build savings further.
If you’re trying to grow your emergency reserve, this roundup of 44 quick ways to save money can help you begin. You might also look into side gigs to bring in extra cash to set aside. There are even opportunities to earn from home.
Nicole Hart is a senior writer at Savinly.
