Emergency costs
Nearly 20% of American adults revealed they couldn't cover an emergency expense over $100, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households 2023-May 2024.
Of those who participated, 18% said the largest emergency expense they could comfortably afford — using only savings — was less than $100, while 14% could handle anywhere between $100 and $499. Only 10% could handle $500 to $999.
The purpose of an emergency fund is to serve as a safety net in case of an unexpected cost, be it a sudden essential home repair or medical situation.
However, $1,000 is likely inadequate for most emergencies. The average cost of auto repairs, for example, could range anywhere between $500 for a minor incident to $10,000 or more for a major accident, according to AAA.
Meanwhile, the average cost of a trip to the hospital is $2,600, without insurance, according to UnitedHealthcare.
Even with insurance, $1,000 may not be enough. The average deductible among covered employees in a plan with a general annual deductible is $1,735 for single coverage, according to the Kaiser Family Foundation’s 2023 Employer Health Benefits Survey.
With this in mind, Hammer believes people should set aside the “highest deductible” on their health insurance plan. This is a more robust safety net for most Americans.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn MoreMonthly essentials
Another situation worth factoring into your emergency fund is a sudden loss of income.
A robust emergency fund should be able to support the costs of basic necessities if you or your partner lost their job unexpectedly. However, the rising cost of living has raised the bar for this safety net.
As of June 2024, a typical one-bedroom rental in America came in at $1,526, while a two-bedroom goes for $1,900, according to Zumper’s rent index. That means a $1,000 emergency fund wouldn’t even cover the cost of housing for a full month in many parts of the country.
It would also barely cover the cost of groceries for a household. On average, a family of four, including two children between the ages of 9 and 11, could spend an average of $1,074 to $1,635 on groceries for a month, according to data from the U.S. Department of Agriculture.
This is why Hammer recommends setting aside enough money to cover basic necessities for at least one full month — taking into account housing, food, and utilities. However, many financial experts recommend having three to six months of savings stashed away for more financial security, especially if you’re living paycheck to paycheck.
The richest 1% use an advisor. Do you?
Wealthy people know that having money is not the same as being good with money. Advisor.com can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning.
Try it now