How Much Should I Have in My Emergency Fund? comments (1)

By Wendy Mihm | April 8, 2011

Saving money in an emergency fund can be quite a controversial topic. 

Some finance writers are adamant that you should have at least a year’s worth of living expenses saved up. Others think that any more than $1,000 is too intimidating a goal to save for.

And then, one of my favorite finance writers, Liz Pulliam Weston over at MSN Money, makes a compelling argument for a $0 emergency fund! Though I love her logic, I’d caution that it applies to those who are sophisticated in their personal finances, and confident they could stay disciplined in executing her strategy, should a big emergency arise.

Dave Ramsey’s take on the $1,000 emergency fund is that it’s a “Starter Emergency Fund” and that it’s generally for people who are climbing out of credit card debt.  His thought is that, should something relatively small happen, like a pipe bursts or your car needs a fairly minor repair, you can use your starter emergency fund to pay for it, rather than piling up more credit card debt.  Not bad logic.  But it’s also not a solution for a larger emergency, in my opinion.

For example, while we were traveling in Quèbec City back in 2008, my then-toddler daughter suffered a very serious crush injury to her right hand.  Long story short, it involved an ambulance ride, a two-week hospital stay, multiple surgeries, and plenty of medical bills that added up quickly.  We needed access to more than $10,000 within a few short weeks, to hold the doctors at bay while we fought with the insurance companies over claims written in French. 

Fortunately we did have a fairly sizeable emergency fund to turn to, because our insurance company did not kick in its share until a full year later.  By the way, if that story is not compelling enough to convince you that you need an emergency fund at all, here are ten more reasons why you need an emergency fund.

The middle of the range, 3-6 months worth of expenses, tends to be the most popular and is quoted at respected sites like and The Motley Fool.

What is important to remember here is that the emergency fund, like most personal finance tools, is, well, personal.  You have to consider your family’s situation, while layering that against the economic climate.

For that reason, I tend to side with Trent over at The Simple Dollar, who established a goal of a 12-month emergency fund for he and his wife.  I know, it sounds huge.  But hear me out before you flail your arms around and proclaim it to be a ridiculously large goal.

Why a 12-Month Emergency Fund Makes Sense For Our Family

(And May – Or May Not – For Yours)

  • We calculated 12 months’ worth of very basic living expenses, not how we currently live, which is more comfortably.
  • Once we established the automatic payments into our account, we forgot about them and didn’t miss the money.  Really.
  • We have already experienced a major emergency (mentioned above) and have seen the value of a large emergency fund pay off.
  • We have two young children who cannot yet take care of themselves.  If money stops coming in, we still need to feed and clothe them.
  • I have a family member who was recently unemployed for 16 months. I know that if either of our current situations ceases to be lucrative, it could take a long time to get a job.
  • We do not carry any credit card debt that we should otherwise be paying off.
  • We are already aggressively paying off our mortgage, which we have refinanced to an historically low rate.
  • We already contribute as much as we possibly can to our retirement funds each year.

Now, having said that, you should also consider many factors before you decide on the size of your family’s emergency fund. So, here’s a list to help you along.

Factors To Consider in Deciding the Size of Your Emergency Fund

  • If you were to lose your job today, how long do you think it would take you to find work?
  • Do you have children?  If so, how many and how old or young are they?  How long will they be in your care?  Do they have special needs?
  • Do you carry credit card debt that you should prioritize before putting larger contributions into an emergency fund?
  • Have you contributed enough into your and your spouse’s employer’s retirement plans in order to earn the company match? If not, you should prioritize that!
  • Do you have a good understanding of your family’s actual monthly living expenses? What can you eliminate to minimize these if you were to lose a critical source of income?

Again, our family went with the year’s worth of expenses because of what we’ve already been through, what we’ve seen relatives go through in trying hard to find a job, the reality of today’s economy, and our current financial situation. 

Consider these same factors and the list above as you establish your family’s emergency fund because, although life is generally good, it’s often unpredictable!


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Comments for How Much Should I Have in My Emergency Fund?
By Sara Tetreault on April 08, 2011

I completely agree about an emergency fund.  I don’t think $1K is enough, though.  You never know what life will bring your way and it’s best to be prepared.  Living frugally is the best way to save money for that rainy day fund.

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