How Much Should You Have In An Emergency Fund?

Keeping emergency fund cash on hand is good—but maximizing return is still important. So, how much should you have in an emergency fund?

Emergency funds are an important part of your financial plan designed to cover unexpected events like job loss, major medical bills, car repairs, home repairs — there are no shortage of financial curveballs in most of our lives. Having enough money saved in a rainy day fund will also give you invaluable peace of mind — if an emergency situation should occur, you have quick access to cash.

When it comes to emergency savings, there is no shortage of differing opinions about how much cash you should have or where it should be kept. A traditional savings account, a checking account, a money market account, or other low-risk investments that are easy to liquidate? And what is too much cash? What is too little? Can’t someone just provide the “Goldilocks” amount? Actually, there is a “just right” number—but it is highly individualized and subject to change, which explains a lot of the confusion. Where you keep you cash, however, is much more clear-cut.

What is Your Emergency Fund Goldilocks Number?

Personal Capital advises individuals to save enough cash to cover three to six months of expenses based on your average monthly spending. Narrowing that general statement requires getting personal.

First, you need to calculate your average monthly spending. This number can exclude nonessential spending, such as dining out, travel or shopping. Just concentrate on your unavoidable costs, such as housing, healthcare, transportation, food, debt or credit card payments or other expenses. Once you have a number, multiply by three, six or something in between. Picking your multiplier depends on your personal circumstances. Is your job secure? Do you have a family depending on your income? Do you have other sources of income? Are there ongoing health concerns?

If you are healthy, have a working spouse and no children, three months of savings will likely suffice. If you support children, have one income source and some health costs, six months, perhaps more, might be the right number. As your circumstances change, your savings goal may need adjustments, as well.

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