How Much Do I Need in My Emergency Fund?

Our emergency fund is finally fully funded. WHEW! Since I am switching to full-time self-employment, Β we have been really focused on building it back up. A couple of months ago, I drained our emergency fund completely so that we could pay the ol’ student loans.

Currently, we have around 12 months of expenses in our emergency fund. If we didn’t have some sort of emergency fund, I honestly don’t think that I would feel as comfortable about self-employment.

I am confident in my services that I offer, but you never know. What if I have a completely uneventful month where my expenses are higher than my income? What if something in the house breaks or our basement floods?

Luckily, we also have a fairly low budget. This makes saving up for 12 months of expenses a little bit easier. However, I will of course not say that saving up for a fully funded emergency fund is the easiest thing on earth. It is definitely hard. Saving up for an EF is a lot more enjoyable than paying off student loans though πŸ™‚

Holly is another fellow freelancer, who recently made a post about why she’s happy that she has an EF. They are important!


Why is an emergency fund important?

An emergency fund is important for many reasons. For the sake of this post, an emergency fund covers all “emergencies,” even though I do understand that some families have a “job fund,” “house fund” and so on all in different categories.

An emergency fund makes living life a little bit more comfortable. If you don’t have to worry about living paycheck to paycheck, or about how to pay for the next thing that breaks, it’s probably because you have an emergency fund. Of course, you don’t want things to break, but if something unexpected does happen, then it does not have to be the end of the world.

An emergency fund can cover all types of events. Maybe a medical problem arises and you need to pay for some of it out-of-pocket.

Did you lose your job? An emergency fund can help keep you afloat until you find your next job.

An emergency fund can also cover something going wrong or breaking in your house. What if you need a new roof? Or a new furnace? Or your basement floods? These things are not cheap.


How do I determine how much I need?

It is a little difficult to determine how much each person/family should have in their emergency fund. I would say that it should be whatever you are realistically comfortable with.

Some people feel perfectly fine about not having a large emergency fund and consider their credit cards their emergency fund, whereas others really think that a large emergency fund is important. I am one of those people who think that a large emergency fund is best. I am a big worrier that something will break!

If you have debt, some say that you shouldn’t carry more than $1,000 in your emergency fund. This is because you should be focused on debt instead of emergency funds which don’t gain much in interest.

Since I plan on switching to self-employment, I want a larger emergency fund. I don’t want one bad month to make paying my monthly bills feel impossible. Having 12 months of expenses feels like a comfortable amount to me. My EF could potentially cover 12 full months of $0 earnings, or it could cover a mixture of lower income and something happening to our home.

Generally, if you own a home, have an unstable job (such as a commission-based job), have an older car that might need repairs soon, or a larger family, then you will want a larger emergency fund. With a home, things break. With an unstable job, you might have a bad month, and an EF can give you peace of mind. An older car might need a repair, and if you have a larger family, well, there is a bigger chance that something unexpected may happen.

Do you have an emergency fund? Why or why not?



How Much Do I Need in My Emergency Fund? — 49 Comments

  1. We are working on building our emergency fund but we only have close to 4 months of living in it and the goal is to get to 12 months. I too believe that an emergency fund is extremely important especially when you are self employed – but I wouldn’t go for more than 12 months of living expenses saved up in an emergency fund.

  2. I think a 12-month EF is a great plan for you, given your soon-to-be job change and your personal desire for a huge cushion. We do have an EF, although it’s not nearly as big as I’d like it to be right now. Our goal would be a 6-12 month fund after we pay our debt off.

  3. We just call ours a “buffer” and like to keep it so that it covers every possible insurance deductible we have. We used to keep even more in it, but we’re getting to the point where we’ll be doing more investing in taxable accounts, so we might not keep quite as much in cash as we had in the past, preferring instead to keep more of it in the markets.

  4. I definitely need to build up my emergency fund. Ideally I’d like to have 6-8 months of expenses in it, plus I want to build up a $1000 buffer for unplanned non emergencies like tax bills and routine car repairs. After I become debt free, that’s my next goal!

  5. I do not have a traditional emergency fund. I think they are a waste. My money can be better used working for me. I keep most of my money in a taxable investment account. I know this doesn’t work for everyone, but it what I grew up with and I am comfortable doing this.

  6. I think that’s really smart to have a large emergency fund in place if you’re self-employed, a contractor, or freelancer. There are just more variables in play, so it makes sense to have a much bigger cushion than the normally recommended 3 to 6 months’ worth of expenses. However, I do think you’re missing out on opportunities to grow that chunk of change if it’s just hanging out in a very liquid account – do you have plans to put your fund in a high-yield or investment savings account, or something like a Roth IRA?

  7. Having an emergency fund that could cover six to twelve months of your expenses is really good, though some may only need at least 3 months worth of expenses as their emergency fund. It’s really different for every individual.

    • I agree! If you have a home, usually more is better. You never know when something may go wrong. Insurance doesn’t cover everything!

  8. Great article! Emergency funds are key to maintaining a healthy financial life. Though I am focused on paying down my student loan debt, maintaining a balance in my savings that I know is reserved just for emergencies helps me sleep at night. I am also confident that if an emergency were to hit, I could decrease my monthly outs pretty quickly. Although, I don’t think any amount is enough, for now what I have will have to do.

  9. I’ve got about three months worth of expenses in my emergency fund. I’d love to bring it up to six months or a year but when it comes down to maxing out my ROTH IRA or putting money in my emergency fund I gotta go with the ROTH. That money grows SO much faster and if need be I can pull out the principal without penalty.

  10. I currently have about $1000 in my emergency fund. I’m really, really tempted to just pay off my credit card debt with it though – I can’t stand that my debt is growing faster than the interest on my emergency fund! The good news is that my credit card balance is now less than how much I have saved, so if I were to pay it off now, I can work on rebuilding my emergency fund ASAP.

    Decisions, decisions. Congrats on building up your EF to 12 months of expenses! Impressive!

  11. 12 months in EF, excellent job with that.
    We’re saving now for the birth of our child (it costs us in a private hospital, I don’t want to go to the state hospital) and also on the long term (retirement). Always a good idea to have some money stashed, you never know what life throws at you.

  12. I think it’s all about making trade offs. I currently don’t have an emergency fund because I plan to sell some stocks or bonds if I become cash strapped. When I eventually have a family however I will definitely need some extra money saved up somewhere safe, so I think how big an EF should be, or whether we need one or not, depends on what stage of life we’re in and if we have other financial assets or not πŸ™‚

  13. I don’t have a substantial emergency fund and have written a post about that for tomorrow. I have been plugging away cleaning up bad habits and debt and haven’t focused as much as I should have on debt repayment. Not good. I have the goal of having a 12 month fund it will be “easy” to do after the debt is gone.

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