When it comes to following standard financial advice, how many of us can say we actually have three to six months worth of living expenses saved in an emergency fund?
It’s a noble goal, but if that’s too overwhelming for your current financial situation, may I suggest a different emergency fund benchmark: Your health insurance deductible.
Your deductible is the amount of money you have to pay for health services, aside from certain preventive benefits, before your insurance kicks in. The average deductible for single coverage was $1,491 in 2018, and $2,788 for family coverage, according to a report from the nonprofit International Foundation of Employee Benefit Plans.
That’s much lower than three to six months of living expenses (and your exact deductible will obviously vary), but ensures that if you or a family member has a medical emergency, you can cover (most) of the bills without having to rely on a credit card, personal loan or, increasingly in the U.S.’s bleak financial ecosystem, a fundraiser. You’ll still be on the hook for copayments and coinsurance, but at least you can cover your initial bill.
If you have a HSA or FSA, of course use those funds to cover as much of the cost as you can, but don’t include them in your emergency fund total. That way you’ll have an additional safety net to help you pay down any surprise bills.
This number is just a starting point. If your medical emergency leads to incapacitation or an inability to work, you’ll need more stashed away to help you cover day-to-day expenses. But it’s a good starting point when many Americans cannot cover even a $400 emergency out of pocket.
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