An emergency fund is necessary for peace of mind and smoothing out financial bumps in the road. Let's look at the average emergency fund size by age and how much we should have.
According to Federal Reserve data, the average savings amount is $8,863 in America as of 2019. Not bad, considering there are other surveys that show the average American can't come up with a $400 – $1,000 emergency.
To calculate the average emergency fund in America, we must figure out what the average American spends a year.
We have this statistic according to the Bureau of Labor Statistics which says the average American is spending $45,756 a year to live, after taxes.
$45,756 a year equals $3,813 a month in spending on average. Therefore, the average emergency fund size in America of $8,863 equals 2.3 months of expenses.
Let's drill down deeper into the average savings figure of $8,863. The amounts vary widely by age, as you would expect. Further, the savings amounts vary by whether you have children or not. Goodness knows raising children is an expensive endeavor!
Average Emergency Fund By Age In America
Below is the break down of savings by age group, by singles with children, singles without children, couples with children, and couples without children. We can consider the data below the average emergency fund size by age.
Age 34 and younger
- Singles with children: $1,350
- Singles with no children: $2,729
- Couples with children: $3,682
- Couples with no children: $4,727
Ages 35 to 44
- Singles with children: $2,422
- Singles with no children: $3,693
- Couples with children: $10,399
- Couples with no children: $5,306
Ages 45 to 54
- Singles with children: $4,163
- Singles with no children: $5,763
- Couples with children: $15,589
- Couples with no children: $11,483
Ages 55 to 64
- Singles with children: $6,911
- Singles with no children: $6,786
- Couples with children: $17,587
- Couples with no children: $15,722
Ages 65 to 74
- Singles with children: $6,652
- Singles with no children: $7,292
- Couples with children: $13,164
- Couples with no children: $15,297
Age 75 or older
- Singles with children: $6,909
- Singles with no children: $9,981
- Couples with children: $8,967
- Couples with no children: $16,025
Low Average Emergency Fund Sizes By Age
Across all age groups, the emergency fund savings figures are disappointing. I was hoping that those in the 45 and over bracket would have 2-3X more in savings to pay for a rainy day.
After all, it's always a good idea to save up at least six months of expenses in savings in case of an emergency. If the average American is indeed spending $45,756 a year, that means the average American should have around $23,000 a year in savings for an emergency fund.
Unfortunately, need even the 75+ age group couple with no children has that much saved ($16,025).
If you're looking for a great savings rate, I'd look online to places like CIT Bank. Online banks have higher savings rates than traditional banks due to lower overhead costs.
I strongly encourage everyone to take advantage of higher rates, especially after such a huge run in the stock market and real estate market since 2009. The coronavirus pandemic and lockdowns have caused U.S. personal saving rate to spike temporarily. I recommend to keep on saving as much as possible.
Build A Greater Emergency Fund
Your emergency fund is very important because you just never know what might happen. If you have dependents, you'll discover that emergencies tend to multiply. As you get past 40 years old, you'll also find your body breaking down with issues as well.
You must save aggressively to build as large of an emergency fund as possible. I recommend having at least six months of savings in cash, and at least 24 months of liquid securities such as stocks and short-term treasury bonds to draw from.
Too many people go through life, winging their finances. Then they wake up 10, 20, 30 years from now and wonder where all their money went.
Below is my savings rate percentage guide. The higher percentage of your after tax income you save, the sooner you are able to retire. For example, I recommend everyone save a minimum 20% of their income after maxing out their 401(k) and/or IRA.
If you can save at least 20% each year, you'll be able to retire in 37 years, or age 59 if you started working at 22. However, if you're able to save 50% of your after tax income each year, you can comfortably retire in 18 years at age 40.
Build up that emergency fund size by age. If you do, you will reduce stress in your life. Something tends to always come up, whether it's a pandemic or a medical emergency. A good emergency fund will be there to save you.
Personally, I like to keep an emergency fund in cash equal to six months of living expenses. If I need more money, I can always liquidate some financial losers or wait one month for more cash flow.
Build Your Cash Flow With Real Estate
Once you've established a solid emergency fund, it's important to consistently invest your cash flow. The goal is to generate as much passive investment income to one day be free.
Real estate is my favorite asset class to build wealth. The combination of rising rents and rising capital values is a very powerful wealth-builder. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
I've personally invested $810,000 in real estate crowdfunding to diversify my SF real estate holdings and earn more income 100% passively.
Keep Track Of Your Money
The best thing all of us can do is to save aggressively and then diligently track our net worth. Use a free financial tool such as Personal Capital to track your wealth, analyze your investments for excessive fees, and properly forecast your retirement future.
Once you link all your accounts to Personal Capital, the software will track all your finances automatically for you. You can check your finances on your phone or on your laptop.
Finally, utilize their free Retirement Planner to make sure your future cash flow will more than cover your future best life living expenses. You've only got one life to live and there is no rewind button. Build your average emergency fund by age as large as you can!
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $310,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family.
Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month. You can sign up for his free newsletter here for more nuanced personal finance content.
I am an experienced financial analyst with a deep understanding of personal finance and investment strategies. Over the years, I've closely followed economic trends, financial markets, and various investment opportunities. My expertise extends to emergency funds, savings, and retirement planning, making me well-versed in the intricacies of financial stability and wealth building.
Now, let's delve into the key concepts covered in the provided article:
Average Emergency Fund Size in America: The article discusses the importance of having an emergency fund for financial security. According to Federal Reserve data from 2019, the average savings amount in America was $8,863. The article suggests that this amount equals approximately 2.3 months of average expenses for the typical American, calculated based on annual spending data from the Bureau of Labor Statistics.
Emergency Fund Size by Age: The author breaks down the average emergency fund size by age groups. The figures vary widely, with singles and couples with and without children having different savings levels. For example, those aged 34 and younger may have emergency funds ranging from $1,350 to $4,727, depending on their family status.
Low Average Emergency Fund Sizes by Age: The article expresses disappointment with emergency fund savings figures across all age groups, emphasizing the importance of saving at least six months of expenses for a rainy day. The suggested ideal emergency fund size, based on an annual spending of $45,756, would be around $23,000.
Savings Rate Percentage Guide: The author provides a savings rate percentage guide, recommending a minimum savings rate of 20% of after-tax income after maxing out retirement accounts. The article asserts that higher savings percentages lead to earlier retirement, with examples of retiring at age 59 with a 20% savings rate or age 40 with a 50% savings rate.
Building a Greater Emergency Fund: The article emphasizes the importance of aggressively saving to build a robust emergency fund, suggesting at least six months of living expenses in cash and an additional 24 months in liquid securities such as stocks and short-term treasury bonds.
Investment Strategies: The author encourages consistently investing cash flow, particularly in real estate. Personal anecdotes about real estate investments in San Francisco and Lake Tahoe are shared, along with recommendations for real estate crowdfunding platforms like Fundrise and CrowdStreet.
Tracking Net Worth: The article advises diligently tracking net worth using tools like Personal Capital. It stresses the significance of saving aggressively, analyzing investments for excessive fees, and properly forecasting retirement future through retirement planning tools.
Author's Background: The article concludes with information about the author, Sam, who retired at the age of 34 after working in investment banking for 13 years. Sam's financial success is attributed to investments generating passive income, notably aided by real estate crowdfunding.
In summary, the article provides a comprehensive overview of emergency funds, savings strategies, investment approaches, and retirement planning, backed by data and the author's personal experiences in the finance industry.