How much do I need in an emergency fund?

Last week we talked about the difference between needs and wants in your budget. After you’ve gone through and totaled up your needs, that total number is a good place to start if you’re wondering how big your emergency fund needs to be. Here’s why….

An emergency fund is cash you keep on hand in a savings (or similar) account. It doesn’t earn you much interest, but it’s guaranteed to be there when you need it. If you lose your job, have an accident, or you lose your income for some other reason the emergency fund is there to get you through until you can replace that income. When figuring out how big it should be it’s good to start with your needs because that’s what you have to pay no matter what. You can cut back on dining out, you can cancel your Netflix subscription, you can cancel or pause your gym membership. But you’re going to have to keep paying your rent or mortgage, your electric bill, for groceries, etc. Those are your needs, you can’t live without them. So if your needs added up to $2,500 last week, a 3 month emergency fund would need to be at least three times $2,500 or $7,500. A 6 month emergency fund would be at least $15,000.

If that sounds like a lot or you’re not sure why you even need an emergency fund, you can learn more about them and how to decide how much money you need in yours right here.