How healthy is your emergency fund? How long could it protect you if you were sidelined by a health crisis?

Many American households are surprisingly vulnerable. A single financial shock, such as an illness or injury requiring a trip to the hospital, can cause financial hardship lasting months, according to a new report from the Pew Charitable Trusts. Even families with higher incomes can be disrupted by just one financial setback, the report found.

Why an Emergency Fund Is Crucial

Most people budget for recurring expenses, like housing, food, and transportation. But a sudden health crisis can throw families for a financial loop.

  • More than half of the 7,800 households surveyed struggled to make ends meet after their most expensive financial shocks; six months later, nearly 50 percent still had not recovered.
  • After suffering the shock, households had lower savings and higher credit card debt than those that weren’t affected.
  • Even among those with incomes of $85,000 or more, 42 percent said they had not recovered financially in the 12-month period covered by the survey.

“Unexpected expenses and income losses cause immediate strain and can also make it difficult to build or rebuild a cushion,” the report notes. The reality, it continues is that “for many households, financial hardship is only one unexpected expense away.”

That’s why building and maintaining an emergency fund is not just important but crucial if you want to protect your family’s finances from a health crisis.

How Much to Save

Conventional wisdom is pretty vague on how much to stash in your emergency fund. Recommendations range from three months to almost a year of take-home pay. “It would be great to have six months’ worth of expenses sitting in a savings account along with a month’s expenses in your checking account, so you can pay the bills and not stress about where the next check is coming from,” says Craig Adamson, president of Adamson Financial Planning in Marion, Iowa.

In calculating how big to build your financial umbrella, Adamson points out that a health crisis affecting one member of the family affects the earning power of everyone in the household. “You’re going to be taking time off from work. How many people have more than two or three weeks of personal leave, so they can be at the hospital and do all the things that need taking care of while getting a paycheck before burning through their savings?”

HelloWallet, an online financial wellness service, offers another approach to figuring out the strength of your safety net. Its free website calculator provides personalized guidance about the savings households need to handle three different types of financial emergencies, from minor set-backs to major smack-downs to an extended job loss. In addition to obvious factors, such as your annual gross income and take-home pay, the tool also takes into account the number of cars you own (cars are a frequent trigger for financial crises), your housing situation (homeowners are on the hook for more emergency bills than renters), and your maximum out-of-pocket health insurance coverage.

“Family financial security requires more than just having enough money to pay regular bills and build savings; it also entails being prepared for the unexpected,” the Pew report notes. It’s advice worth taking.