Emergency Fund: How Much Do You Really Need

The standard advice is 3 to 6 months of expenses in an emergency fund. But the right number depends on your specific situation. Here is how to calculate yours.

What Emergency Funds Cover

Emergency funds handle unexpected income interruption: job loss, illness, disability. They also cover unexpected large expenses: major car repair, home emergency, medical bills.

Emergency funds are not for predictable expenses. Annual insurance premiums, holiday spending, and car maintenance are not emergencies. Budget for those separately.

The Standard Range

3 months minimum: Covers most short-term disruptions. Suitable for people with stable employment, dual-income households, or quick re-employment prospects.

6 months comfortable: Handles longer job searches, extended illness, or multiple simultaneous emergencies. Good baseline for single-income households.

12 months conservative: For volatile industries, self-employed, single earners supporting families, or those who sleep better with more cushion.

Factors That Increase Your Target

Job volatility. Layoff-prone industries, contract work, or specialized skills that take longer to re-deploy.

Single income. No backup earner means more cushion needed.

Health concerns. Chronic conditions or family health issues increase unexpected expense risk.

Homeownership. Houses break. Roofs, HVAC, plumbing, and appliances fail unpredictably.

Dependents. More people relying on your income requires more buffer.

Factors That Decrease Your Target

Dual income household. One job loss is survivable on the other income.

In-demand skills. High employability means shorter job searches.

Other liquid assets. Accessible investments (not retirement accounts) provide backup.

Low fixed expenses. Flexibility to cut spending during emergencies reduces needed buffer.

Where to Keep Emergency Funds

Emergency funds need to be liquid (accessible quickly) and stable (not subject to market drops when you need them).

Good options: high-yield savings accounts, money market accounts, short-term CDs with early withdrawal access.

Poor options: stocks, long-term bonds, retirement accounts with penalties, anything illiquid.

Building Your Emergency Fund

If starting from zero, aim for $1,000 first as a starter emergency fund. Then build to one month of expenses, then three, then your full target.

Automate transfers to make it happen. Treat emergency fund contributions like any other required expense.