How Much Should You Have In An Emergency Fund?

The short answer?
Three to six months of living expenses.
​
The correct answer?
It depends on your financial situation.

Your emergency fund is a safety net. In the event that you get sick or lose your job, you should use your emergency savings to keep you afloat for a few months until you get back on your feet.

Your emergency account should always be kept completely separate from your checking and regular savings accounts. It should only be accessed for true emergencies such as an unexpected medical expense, unplanned unemployment, or a natural disaster.

Traditionally, financial advisors have recommended that nn emergency fund be enough savings to pay your living expenses for 3 to 6 months. Money in your emergency fund should always be readily accessible.

To determine how much money is needed to pay up to 6 months worth of bills, you have to do a budget (duh!) and write down all your expenses for each month. Calculate the total spent each month, so that paying all your bills would be "X" amount. Use this amount of money and multiply 3 or 6 to determine the total amount needed in your emergency fund to survive a catastrophic event.

---

QuickBooks Self-Employed: Untangle Business and Personal Spending. Start Your Free 30-Day Trial!

Now for the long explanation. You may need to have as much as 12 months worth of expenses saved up in your emergency fund. Why?  That's where it gets more complicated.

According to Vanguard if any of these four situations more accurately describe your finances, then you may need to save a lot more than the standard 3-6 months of expenses.

• Economic Recession (higher unemployment rates, longer time to find a job)
• High risk industry (industry prone to lay-offs or forced retirements)
• Unsteady income (work strictly on commission or large swings in pay)
• Retired (Not enough liquid funds/forced to use retirement accounts)

No matter what your situation, you can start by contributing smaller amounts to your emergency fund until you are able to pay down some debts and contribute more to your financial security. Start off with a contribution of at least $20 a month (just $5 per week) to your emergency fund. Then, as you pay down bills and create more positive cash flow, keep saving until you have enough saved to pay your expenses for your desired time frame.

Once you have reached your emergency fund goals, it is time to start thinking about new goals such as maxing out retirement contributions for your retirement.

Having a proper emergency fund will ensure that you are financially secure. A good emergency fund will prevent you from using credit cards when an unexpected tragedy occurs or some really unexpected expenses arise. Don't just take my word for it. Think about your family's financial future and how much an emergency fund would have helped out the last time something happened.