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How Much You Need in Your Emergency Fund Based On Your Unique Life (Not Because Some Guy Said So)

2 women sitting on a couch laughing

When I was going through the classes to become a CFP® professional, we learned all kinds of rules of thumb, including one you’ve probably heard before that goes something like: "Thou shalt keep 3 to 6 months of expenses in an emergency savings account." Many of my clients go on to fill in a follow-up sentence that goes something like, "And if thou be unable to getteth their act together enough to set such amounts aside, thou must be a terrible, no-good with money, irresponsible person."

Obviously this isn't true, but the shaming side of the personal finance industry has done a really great job of convincing otherwise smart, responsible and amazing people that they suck if they don't have a huge amount of cash just sitting around, waiting for their life to fall apart. Most interesting to me is that when the proverbial crap does hit the fan, these same people tend to weather the storm just fine from a financial perspective.

But psychologically? They are beating themselves up over the fact that they've had to tap their savings when things go down. Hello? That's exactly what the money is for - it's not a personal failure to have to actually spend your emergency fund. Let's reframe that into a positive by recognizing that past you made it possible for present you to focus on all the other aspects of whatever life crisis has you needing to spend this money so that future you can move on with life once the crisis is passed, rather than spending years recovering financially.

Not gonna lie, that's a lot of money for most of us

The thing is, 3 to 6 months of your expenses can be a lot of money for people who have the typical expenses affiliated with adulthood such as housing, transportation, utilities, Netflix and sushi, not to mention additional expenses that pile on once you have kids or pets or both. As such, a lot of people have called B.S. on the 3 - 6 month benchmark, and I can’t argue with the logic.

However, I agree we all need some type of emergency savings. But the idea that you are at high risk of financial failure unless or until you have the ubiquitous 3 - 6 months set aside often does more harm than good, even for people who actually have this amount in savings already.

Here’s how I see it.

What the emergency fund is for

The emergency fund’s primary purpose is to get you through an unexpected loss of income while causing as little long-term financial damage as possible. It’s also supposed to give you time to adjust to a new reality should you have a permanent change in income status, allowing you to keep paying your bills until you’re able to reduce them through cancellation or adjustment of service, sale of your home or termination of your lease, etc.

What it’s NOT for

It’s NOT really intended to be what you tap for things like non-recurring but necessary expenses like home maintenance, new appliances, veterinarian bills, etc. Those should be worked into your everyday spending plan. The best emergency funds are those that are held in a separate account and remain untouched except in times of true emergencies. And once the emergency has passed, they are brought back up to their necessary amounts to protect against the next thing.

So how much do you really need

Is 3 - 6 months ideal? Maybe, but honestly, the actual amount totally depends on your personal life situation. Back in the day when I was still figuring out money, I was single, renting a place and had no dependents besides my cat. When I lost my job a year in, it was pretty easy to take my expenses down to just rent and Ramen while I looked for a new job. Worst case scenario, I could’ve paid my other bills on a credit card, then canceled my lease and moved home to my parents until I figured stuff out.

Would that have been desirable? Absolutely not — I was living in Cincinnati and my parents are in Northern Michigan. Blowing up my lease would’ve added to the financial woes and using credit cards to pay bills would’ve extended my debt payoff plan a couple more years down the road. Luckily it didn’t come to that, but I’m just being realistic about what could have happened.

Yes, I said it: credit cards (and therefore having good credit) are essentially a back-up emergency fund. Obviously not the best option, but better to carry a balance for a bit than to live in your car, right?

When your life is a little more complicated, you’ll want more saved

These days a loss of income would be a little scarier in some ways and a little easier in others. On one hand, I own a home and am in my 40’s, so my monthly fixed expenses are quite a bit higher. Plus if a serious financial setback happened to coincide with an economic downturn, it may not be easy to sell the house quickly if we had to.

On the other hand, I’m married so unless we were both in a situation where there was a loss or reduction of income, we’d probably still be able to at least pay the mortgage, I’d just have to quell my Amazon 'add to cart' finger for a bit, and probably learn how to keep our pool chemicals balanced while also returning to my more frugal grocery shopping ways.

We currently keep enough in our emergency fund to pay all of our expenses for at least 3 months, but we could drag it out for a few more months if things were dire by doing things like canceling most of the streaming services, selling our 2nd car and modifying our lifestyle significantly if we had to.

Situations where 6 months (or more) would be the responsible thing to do

That’s my personal situation, but your life will dictate what’s best for you. Reasons you should probably strive for a more beefy emergency fund include:

  • You own a home that could potentially be hard to sell.

  • You work in a field that is highly volatile or specialized, making it hard to replace your level of income should you lose it.

    • This is actually the situation I see more often than any other — a parent with teenagers loses their mid-level executive job due to downsizing or a corporate change and can’t find another role that pays the same. So they either start doing consulting work until some other company recognizes that they’d like to have them on payroll, or they continue to piece together an income as long as they can, all the while adjusting retirement plans downward. (keep in mind, this often happens later in the career, when kids are still in college or before, and it’s really hard to make your kids quit their life just cause Dad or Mom lost their job)

  • You have a large family dependent on one income.

  • You have trouble sleeping at night unless you know you could weather a 6-month period of unemployment without making any changes to your lifestyle.

Think about how you’d react

For people where the answer isn't super cut and dried about how much should be in savings in case of emergency, it helps to think through practically what’s most likely to happen and how you would react, both financially and emotionally. It goes without saying that most people would be able to cut back spending big time if they had to, but what are the areas you’d still have to pay no matter what in order to keep your credit in good standing? That’s what you want to make sure your emergency fund can cover, at a minimum.

When you still need to get started

So what to do if you don’t have an emergency fund yet? First, you need to know how much you should be aiming for. If you don’t know what your monthly fixed expenses are, that’s a great place to start. Just make a quick list of all the things you pay each month that have a due date, then add in an estimate of things like food, gas, etc. and round up to get your baseline number.

Then you just need to automate it by setting up a transfer to a separate savings account (ideally one that pays a higher interest rate that doesn’t charge fees for minimum balances). Your payroll department may be able to even take money directly out of your check and deposit it directly.

Otherwise, set the transfer for pay day so you never even have the temptation to spend the money. That’s what I did, starting with just $25 per paycheck.

Sidenote, you may want to think of your Roth IRA as a dual-purpose until you get your savings account set up. I talk more about that here on episode 8 of my podcast, Financial Bliss with Kelley Long.

The bottom line is, an emergency fund is your first line of financial defense against life’s little twists and turns. Even if you’re working to pay off credit card debt, it’s important to start your emergency fund to help you avoid derailing your debt pay-off plan should an unexpected expense arise. Your future self will thank you!


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