How much money should I have in an emergency fund?

When it comes to personal finance, I think this question is the one that has the most diverse array of answers out there, depending on who you talk to. There really doesn’t seem to be any consensus as to how big an emergency fund should be. There are all kinds of guidelines out there – some people suggest $500, some people suggest three months of expenses, some people suggest a year of expenses. You can go to eight different websites and get eight different answers, leaving you feeling about as lost as when your high school sweetheart dumped you and you thought you’d never love again. But maybe, just like your high school sweetheart wasn’t necessarily the right person for you, there is a different template for each person when it comes to building an emergency fund. Maybe the reason there are so many different answers out there is because there isn’t one overarching answer that screams, “Yes, I am the one!” You have to keep looking until you find the one that fits who you are.

In reality, the amount you need saved in an emergency fund varies based on your situation and the risks that are present in your life. For example, if you’re a two-income household with tight cash flow, you ideally want to build a larger emergency fund, because if one or both of you loses a job, you are in a really tight spot because of your need for both incomes to cover your expenses today. If you and your spouse are both retired and living off your investments, such as a 401(k) plan or Roth IRA, as well as your Social Security income stream, then you are unlikely to experience the same level of strain, since your income isn’t based on your ability to work. That might mitigate the need for such a large emergency fund, and you can aim for a smaller amount stashed away.

But I do think some general guidelines are helpful. And rather than trying to build a table for every scenario out there, here are the principles to work with:

      • Start with $500 as a bare-bones amount to cover true short-term emergencies
      • Add a three-month cushion because life and jobs are unpredictable
      • For each additional full-time job held by your household, add an additional three months to this number
      • For each additional child in your household, add an additional two months to this number

So, every single family out there should have at least $500 put away in savings at a minimum. Save $10 per week for a year and you’ll get there. Beyond that, the rules outlined above help to give you a framework for how big your emergency fund should be, based on your situation. Let’s run through a few examples:

      • Single, no kids – You start with $500, and since you have one full-time job in your household and no children, you should have a three-month cushion in your emergency fund.
      • Single, two kids – You once again start with the same $500 minimum, plus the initial three-month minimum and then since you have one full-time job, add three months on expenses to that total, and then two months for each child, giving you a 10-month cushion in an ideal world.
      • Married, one child, one job – Once again, you start with your basic $500 minimum and the three-month cushion, and since you have one full-time job between two people, it gives both of you an opportunity to go back to work if the person with the job loses it, meaning a three-month cushion is needed here, and two months for the child brings the total in the emergency fund to eight months worth of expenses.
      • Married, two jobs, three kids – Someone is loaded up with responsibility. Two full-time jobs require six months of expenses put away, with three kids requiring an additional six months, bringing your ideal emergency fund to 15 months of expenses.
      • Married, no jobs, no kids – So you’ve managed to retire at this point. No one is depending on you, and you aren’t earning any income, so job loss isn’t a threat. $500 plus three months of expenses does it for you.

So the goal here isn’t to say that you need a certain amount in your emergency fund at all times. It’s to say that your emergency fund, like every other aspect of your financial well-being that we’ve ever discussed, has to adapt to your specific life circumstances. Otherwise, you’re locked into a number that isn’t necessarily the right one for you. You have to adapt on an ongoing basis, and this framework gives you a path to finding the emergency fund size that’s right for you, not just the first number you come across online.