Money Smart Tip #5: Your Emergency Fund is How Big?

emergency fund 300x300 Money Smart Tip #5:  Your Emergency Fund is How Big? In this economy, more and more people are turning to their emergency savings to help them make it through a gap in employment.  The recommended size of an emergency fund differs – some say 3 months, some say 6 and yet others say 12.

Personally, I think it depends.

Here are some of the things you should consider when deciding how much of a safety net feels comfortable for your situation:

1.  Your Field - Are you a specialist with a narrow niche?  Then there probably aren’t a lot of job openings available that would fit your qualifications and you should have a larger emergency fund than a less specialized person.

2.  Severance – Do you have a severance package?  I’ve never been so lucky, but I do know many executive positions include a severance of several months.  If you know you will get a severance, I would count that as part of your emergency fund and adjust accordingly.

3.   Income Streams – Do you have multiple income streams or are you solely reliant on your job?  If you have multiple income streams – such as an employed spouse, rentals, stocks, sidejobs, etc. then your likelihood of having to cover all your expenses is reduced and your emergency fund could be reduced accordingly.  If you are solely reliant on your job, then a larger emergency fund is recommended.

4.  Liquid Funds - How much do you have in stocks that could be liquidated if needed?  How much do you have available on a Home Equity Line of Credit?  Your emergency fund doesn’t have to be a savings account that is set aside and marked EMERGENCY.  It can be a combination of your savings, stocks, HELOC and other liquid assets that provides the cushion needed to make it through a short term gap in income.

Personally, I am comfortable with a 6 month emergency fund, but don’t have 6 months of wages in an account.  I do however, have 6 months of liquid assets available.

How big is your emergency fund?  Is that where you want it to be?

Article first published (by me) as How Big Should Your Emergency Fund Be? on Technorati.

12 Responses to Money Smart Tip #5: Your Emergency Fund is How Big?

  1. Catherine says:

    We have about 4 months in a mix of cash and liquid assets. We’re working up to six months, once we get there we’ll reevaluate our financial situation, and the economy and see if our emergency fund should grow more.

  2. Daria says:

    That sounds really reasonable Catherine. My husband was laid off a full year ago and we didn’t have to touch any of our emergency funds just because we were able to cut back and don’t have debt. Now with me out of work, we’ll definitely cut into those funds, but it is SO nice not to panic and to realize I have some time to find what I really want instead of just leaping into the first job I can get because I don’t have a choice.

  3. I’ve always been a saver — my dad taught me to put aside 10% always — but I’d never really thought about all these variables as well. I am now prompted to compute how many months we have now.

    • admin says:

      Thanks Lori! I really appreciate the comments. 10% savings is a pretty solid target, but is that for retirement? college? Safety net? When you try to break it down it gets pretty complicated! We aren’t doing nearly enough for college savings. Somehow that one has migrated to the bottom of our list, but saving and spending wisely are always important regardless of your targets.

  4. Ratna says:

    I think when the kids start driving though, I plan on reducing the cash we have on hand… ie. liquid assets.. I hear (after much accident research) that they can go after all that especially if the liability coverage is lower than damages/medical etc… got me thinking. Thanks for this! Great stuff! Love your blog

    • admin says:

      They being the people the kids may hit? I am not a tax wiz by any means and I know there are umbrellas and tax shelters to protect your assets from probate court, suits, etc, but I definitely am not savvy enough on that level! May be a good Denver Parent Financial Friday topic!

  5. Hi Daria – great post! Focusing on these positive points are great! We have over six months of back-up, but I’d like to have abt a year.
    It’s great you are focusing on money in a common sense way!

    ty, K

    • Daria says:

      So glad you stopped by and commented Kathy! Of course I’d love to have 30 years or so – then I could retire! :) But having my husband laid off last May and me out of work as of this May, I’ve been incredibly grateful that we have our emergency fund in place and are able to enjoy the time off without panicking. It’s a really great feeling. I can’t imagine being in a position of only having a week or two buffer. I’d be scared all the time!

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  7. Allan Henry says:

    VEry informative article. And I agree with you, how big your emergency fund should be really depends on ones economic status or job employment. But do you really have to go through this? Emergency fund is very precious. You must, at all cost, try to avoid spending it, especially if your only reason for taking it is to pay other debts. Actually it all boils down to one thing, SAVING MONEY. If you have saved enough money and you are living within your means then you don’t have to go through emergency funds. If you want money saving tips you can visit

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