When thinking about how much an emergency fund should be, there’s no set dollar amount, since expenses vary by person. A good rule of thumb is to have at least 3 months of regular expenses saved in case of emergency, but you may want to save up to 12 months of expenses. Multiple factors affect how many months of expenses you should set aside, including:
- Type of employment – Does your company regularly lay people off? Is the field you work in competitive? How long might it take you to find another job if you were unexpectedly out of work? Depending on the risk related to your job, you may consider saving for a longer period of time.
- Life milestones – Are you single, or married with kids? Just starting out or moving towards retirement? Your age or the number of people in your family could raise the risk that you’ll face an unexpected expense or affect your ability to repay it.
- Comfort level – How many months do you want to save for? Choose an amount that will give you confidence in case of hardship, but that you’re comfortably able to build up over time from your current income.
Calculate your emergency fund amount by adding together your monthly expenses, including food, loan payments, rent, utilities, and other bills. This amount doesn’t need to include extras, like entertainment, since you would likely cut back on optional costs in an emergency. After you have a monthly expense amount determined, multiply by the number of months you would like to set aside in emergency savings. Then, start working towards your savings goal!