3-Month vs 6-Month Emergency Fund: Which Is Right for You?

January 26, 2023


When it comes to emergency savings, the question of how much to save is an important one. In the wealth accumulation stage, the recommended emergency fund is between three to six months of living expenses. However, as you get later in life and enter the stage of financial independence and retirement, the recommended emergency fund increases to 18-24 months of living expenses.

Harley and his wife are currently at two months of emergency savings and are thinking about beefing that up. The question is how to decide if they should aim for six months of living expenses or stick with three months. The answer is not a one size fits all as it depends on individual factors.

One factor to consider is how fast you could replace your job. Be honest with yourself and consider the current economic climate and unemployment rates. The longer it would take to replace your job, the more of an emergency fund you should aim for.

Another factor to consider is how many people in your household are working. If both you and your spouse have jobs, the risk of both of you losing your job is less than just one breadwinner, so you can aim for a smaller emergency fund.

Additionally, if you have been investing long enough and have passive income coming in from sources such as real estate, you can take that into account when deciding on your emergency fund.

It’s important to remember that your emergency fund needs may change as your life circumstances change. As you progress through different seasons of life, your emergency fund may need to adjust. It’s important to consider the worst case scenario and make sure you have enough savings to protect yourself during difficult times.

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