The Emergency Fund Debate: 3, 6, or 12 Months Right for You?

If you ask an average financial advisor how much you should save in an emergency fund, they’ll typically recommend one of three goals: three-, six-, or 12-months’ worth of living expenses.

With such a large gap between each option, it’s not always easy knowing how much you should save. Here are some things that can help you decide where you fall on this scale. 

1. Income and Expenses

Your cashflow dictates how much you need in your emergency fund. If you earn a lot more than you spend, you can get away with less. However, you may consider saving more if your income doesn’t stretch as far. 

2. Dependents 

Do you have kids? Does your mother-in-law live with your family? Do you look after a sick partner? The answers to these questions help you set an appropriate goal. The more dependents you have, the bigger your fund should be. 

3. Security 

The next thing you have to consider is how stable your job is. Someone who works in a volatile industry with high turnover or irregular income with no other safety nets may need a bigger fund than salaried workers with steady income and benefits. 

4. Risk Tolerance

How much value do you put on being prepared? If you feel uncomfortable with a smaller emergency fund, you may save more for greater peace of mind. 

5. Debt 

Debt and savings are in a tug of war with your budget. With only so much money to go around, you may have to choose one over the other. Some financial advisors recommend saving a small “starter” fund until you pay off most of your high-interest debt, like online loans. 

Do You Really Need an Emergency Fund?

While the size of your emergency fund may be up for debate, one thing is clear. Emergency savings are crucial to financial security. 

These savings help you roll with the punches, whatever they may be. Whether you lose your job or get stuck paying for several back-to-back repairs on your car, you can cash in these savings to cover your expenses. 

What if You Don’t Have an Emergency Fund? 

Without savings, life gets a lot harder. 

You may not have the luxury of savings as you search for a job, so you might take the first offer you get out of desperation. It might not always be the best offer, and you may be sacrificing salary and fulfillment by cutting your job search short. 

You also won’t have a cushion to help you with unexpected expenses. In this situation, many savings-free Americans have to rely on credit or take out a cash advance.

If you don’t have any room on your credit card, you can see what you could apply for online with a direct lender. Cash advances are small, short-term loans ideal for minor, non-recurring issues, like an unexpected car repair. 

The Takeaway: 

Unfortunately, cash advances can’t help you with unemployment. But an emergency fund can help you weather any storm — which is why it’s critical you save enough money in this account. 

You may choose the smallest fund if you’re a single, high-earning professional willing to take on more risk. But if you have several dependents, work as a freelancer, or crave financial stability, you may choose to set 12 months as your goal.

Ultimately, it’s your choice. The important thing is that you’re committed to saving.