How Big Should My Emergency Fund Be, According to My Age and Life Stage?

We all know we need an emergency fund. Emergencies happen. They’re often expensive. And mostly unpredictable. So how on earth do we know how much to budget for them? We don’t, of course, but there are things you should consider when deciding how big your emergency fund should be, and they’re fairly straightforward.

Age, life stage and current lifestyle all impact how much should be in your emergency fund. Alexa Von Tobel, author of Financially Forward, breaks it down for us, pointing out that there are a few things that impact what we’re likely to need in an emergency. To start the calculation, you need to work out what your current financial needs are.

Von Tobel suggests a 50/30/20 budget, which means exactly 50% of your income is covering your needs, but as we’ve discussed before, that’s not possible for everyone.

If you’re living paycheck to paycheck and only spending on your basic needs, then obviously your current income is your baseline for this calculation. Von Tobel also assumes the worst-case scenario (that is, losing all your current income due to a job loss or other event that makes it impossible to work).

Next look at your age, life stage, and current lifestyle. According to Von Tobel:

• If you’re young and single with no children, no mortgage and no big financial obligations, you likely need an emergency fund that’s three times your current monthly income.
• If you have a partner, you’re both working, and you have at least one big financial obligation such as a mortgage, you likely need an emergency fund of six times your current monthly income.
• If you fall under the above category but earn more than $100,000 annually, you likely need an emergency fund of nine times your current monthly income (due to your expenses probably being higher and the more complex process of finding a new job at the same level).
• If you have children or other dependents, you likely need an emergency fund of twelve times your current monthly income (yes, that’s a whole year’s worth of expenses).

Other Things to Consider

While these are good ball park figures, it’s also a good idea to look at your daily reality at this point in your life. Here are some questions to consider.

• Are you young enough (and fortunate enough) to still be at the “I’ll just move back in with my parents” stage?
• Does your partner have the income (and inclination) to support you both for a while if necessary?
• Are you at a stage in your life (often either very young or nearing retirement) where you’d feel happy taking any old job, rather than holding out for one that’s right for your career?
• Do you have skills that would allow you to ‘fill in’ income gaps, working online for example, if you were laid off or physically unable to do your current job for a while?
• Are you flexible enough to move locations for a new job if needed?
• Are there aspects of your expenses that will change drastically in the near future (a child you’re supporting through college who’s about to graduate, or a preschooler in expensive childcare who’s about to start public school)?
• Do you have excellent insurance, workers’ comp and other benefits that would mitigate certain emergencies?
• Are you near enough retirement that you could take it early, albeit with a slightly reduced overall income?
• Do you have other funds or assets you could liquidate if your emergency lasts longer than you thought it would?

Emergency fund advice can never be one-size-fits-all, and as with a lot of things, it’s generally better to have more than you need, but it’s also worth thinking it through carefully.

Your emergency fund should be in an easily accessed account, which means that you probably won’t be getting much in the way of interest, so there is actually an opportunity cost to having too much in your emergency fund. Customizing it to your circumstances may mean you’re able to make better use of all your financial assets.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen