How Much Should I Have in my Emergency Fund?

Everyone should have an emergency fund. No matter how much money you make, how much you spend, or any other particulars about your financial situation, it’s critical to save for emergencies. Why? Because life is unpredictable. Your car could break down, your roof could start leaking, your washing machine could fail, you could get sick, or you could lose your job. Any of these unexpected situations (and a variety of other situations) can happen to just about anyone without much warning.

If you don’t have any money put aside to deal with an emergency, how will you afford any of these expenses? What would you do if you lost your job? For most people who don’t have an emergency fund, an unexpected expense or a job loss would mean going into debt to make ends meet. The more debt you have, the harder it is to afford everything, and the more likely you are to end up in significant financial trouble.

So, that means it’s very important to have an emergency fund. But how much should you have in your emergency fund?

Most experts say that it’s a good idea to have at least three months of living expenses put aside in an emergency fund. To figure out what that means for you, you’ll need to add up how much you’ll need to afford your basic needs for a month and then triple it. This means you’ll need add up what it costs to afford mortgage or rent payments, utilities, transportation, gas, food, and anything else that’s critical in an average month. If this costs, for example, $3000 a month, then you should aim to have at least $9000 in your emergency fund.

However, if you’re in a situation where you’re responsible for financially supporting others (such as your spouse or your children) you’ll want to put more money aside. A good idea in this situation is to try to have at least six months of expenses in your emergency fund.

You’ll also want to consider putting aside at least six months of expenses in your emergency fund if you work in career that has a high likelihood of turnover or injury, as well as if you work contract jobs or freelance work. In short, if it’s likely that you may lose your job in the future without much notice, then you should have more money saved for emergencies. If you work in a field where it may take you a while to get a new job should you become unemployed (such as a position where jobs in your field or at your salary level are very competitive or limited) then you may wish to put even more money aside. In this case, an emergency fund of about nine months of expenses may be better for you.

Remember that the money in your emergency fund is for emergencies. It isn’t there to help you overspend on your monthly budget. In fact, it’s a good idea to save your emergency fund in a different account (or even a different bank) from your other money so that you’re not tempted to dip into it for non-emergencies.

Of course, your emergency fund will need to be accessible enough that you can access the money relatively quickly if you need it. Locking your emergency fund into a long-term investment, for instance, isn’t a good idea. If you lose your job, you don’t want to have to wait months (or longer) to access your savings.

If you do not have an emergency fund (or if you have one that isn’t large enough), it can seem very daunting to save enough to cover three, six, or nine months of expenses. Of course, you won’t be able to save this much money in a month or two. Building up an emergency fund takes time. If you don’t have one right now, don’t assume that it’s too late to start. Unfortunately, some people look at the large amount that is recommended and they are discouraged from saving. Know that even if you can only put aside a few dollars a month, it’s better than having no savings at all.

Take a look at your budget and see where you can make some cuts. Then create a category in your budget for emergency savings (if you don’t already have one) and redirect the money that you cut from the other categories into the emergency savings bucket. Over time, your emergency fund will grow.