Saving··4 min read
How Big Should Your Emergency Fund Actually Be?
'Three to six months' is the rule. Here's how to find your number, and where to park it so it isn't quietly losing to inflation.
By Money Pulse Editors
An emergency fund is not an investment. It's insurance you sell to yourself: a boring pile of cash that stops one bad month from becoming a bad decade.
Start with your floor, not your income
Add up what a stripped-down month costs: rent or mortgage, groceries, utilities, insurance, minimum debt payments, transport. Not your lifestyle, your survival number. Most people are surprised to find it is 30 to 40% lower than what they normally spend.
Then pick your multiplier
- 3 months: two incomes at home, stable job, no dependents.
- 6 months: one income, kids, a mortgage, or a field where job hunts take a while.
- 9 to 12 months: self-employed, commission-based, or within a few years of retirement.
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Where to keep it
High-yield savings accounts and money-market funds pay several percent more than a typical checking account, are insured or government-backed, and let you pull money out within a day or two. Keep the fund separate from your spending account. Friction is a feature.
What not to do: don't invest it. A market drop and a job loss tend to arrive together, which is the worst possible moment to be forced to sell.
This article is for information and education only and is not financial, tax or legal advice. Figures are illustrative; past performance does not guarantee future results. Some links are affiliate links. See our disclosure.
