Why a bigger emergency fund is the new financial reality

[UNITED STATES] Recent analysis has sparked debate: to stay financially secure, the average U.S. household should have over $35,000 in an emergency fund—roughly six months of essential expenses. This figure is startling not just because it’s about 40% of the median household’s annual income, but because most Americans hold only a fraction of that in liquid savings. With inflation, healthcare costs, and economic jitters driving up the baseline, we must ask: is this new benchmark a wake-up call, or an impossible standard in today’s financial landscape?

Rising Costs Are Redefining “Safe”

Investopedia’s calculation breaks down the six-month emergency estimate into key categories: $11,634 for medical care, $10,621 for transportation (largely car-related), and $9,785 for housing. These three alone account for nearly 90% of the total. Notably, medical costs are now the largest single factor—reflecting both rising healthcare prices and the vulnerability of households without robust insurance. Combine that with inflation and higher living expenses, and it’s clear why the target number has climbed by $2,000 over the past year.

But here’s the tension: Federal Reserve data shows that the median U.S. household has only about $8,742 in liquid accounts—barely enough to cover a month and a half of expenses. This mismatch highlights a troubling gap between financial best practices and financial reality.

Economic Uncertainty Makes the Case for Bigger Buffers

This year’s cocktail of economic risks—persistent inflation, shaky consumer confidence, potential recessions, and global trade tensions—has elevated the importance of having cash on hand. In a 2022 Federal Reserve survey, 43% of Americans said they would tap savings first in an emergency, far outpacing options like borrowing or cutting spending. This reliance underscores why experts recommend robust, liquid funds.

Yet the recommendation comes at a time when building such a fund is arguably harder than ever. Wage growth has struggled to keep pace with inflation, and many households are stretched thin by everyday costs, let alone setting aside nearly half their annual income in an emergency stash.

Where to Park (and Grow) Your Emergency Fund

For those who can build up this hefty emergency cushion, where they keep it matters. Investopedia’s advice: place the fund in a high-yield savings account or money market account—not under your mattress or in a no-interest checking account. Liquidity is key, but you shouldn’t leave potential returns on the table.

With national high-yield savings rates hovering between 4% and 5% in mid-2025, households can at least partially offset inflation’s bite. But the broader challenge remains: many households are still years away from reaching the recommended balance, assuming they can save consistently at all.

What We Think

The call for a $35,000 emergency fund is both a sensible financial guideline and a sobering reflection of economic inequality. While it’s true that rising costs and risks make larger cushions necessary, most American households simply can’t hit that target without systemic change. Policies that address wage stagnation, healthcare affordability, and housing costs would go much further in helping families build real financial resilience.

In the meantime, households should aim for progress, not perfection: even a smaller emergency fund is better than none, and smart account choices can help stretch every dollar. Financial advice shouldn’t just set ideal benchmarks—it should also meet people where they are, helping them take incremental, achievable steps toward stability.