How much emergency fund should I have?

I’m going to answer your question with a question:

How stable is your income?

More stable income can get by with a smaller emergency fund. Less stable income should have a larger one.

Emergency Fund

Let me back up a bit and clarify what I mean by ‘emergency fund.’ This is money that you can easily access to cover a larger-than-normal expense or use for routine expenses if your income drops. An example is money in checking and savings accounts. Or cash in your mattress.

Stable Income

I also want to comment on the term ‘stable’ income. Don’t assume that because you are an employee of a company that your income is stable. And a freelancer doesn’t necessarily have unstable income.

You need to look deeper at your sources of income to evaluate the likelihood of it continuing and the ease at which you could replace it. Don’t confuse consistency with stability. A paycheck is consistent until you lose that job. And losing your job is often not under your control. Many personal finance gurus argue that if your only source of income is a paycheck, your income is not as stable as you think. Having multiple sources of income is potentially more stable than a single paycheck.

So How Much Should I Have?

So if I’m recommending specifics, three months for those with stable incomes and six months with less stable incomes. Or, if you want to customize it to your situation, ask yourself, “How long would it take me to replace the income I lost?”

Do you have questions about organizing your finances? Leave a note in the comments!


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