How Big Should Your Emergency Fund Be

How big should your emergency fund be?

An emergency fund is an amount of money that you put away for when a rainy day comes. Rainy days can come in an infinite variety – from the gearbox packing up on your car, to your roof leaking, or being made redundant – the list is endless. Its money that you can call on quickly to fix these events in life which you know will come but don’t know when they’re coming. Events which are just that bit bigger than your usual monthly budget can cope with.

how big should your emergency fund be

how big should your emergency fund be

I think that having an emergency fund is an essential part of developing a financial plan and the first thing I’ve done since deciding to turn my financial life around is save £1,000 (or $1,600) which is the absolute minimum amount that anyone should aim for.
I’ve saved this £1,000 to try to break my cycle of never having enough ready cash for a rainy day, and to help stop me loading these sort of events onto a credit card – which I know I will only ever pay off the minimum balance.

In an ideal world – most financial experts recommend that people save a minimum of four to six months living expenses to help them through lifes disasters – but I’ve always thought that this is a too simplistic rule of thumb.

At present, my emergency fund will remain at the £1,000 level as I’m currently paying of £22,000 ($35,000) of credit card debt. To me, there seems to be no reason to have significant amounts of cash sitting in the bank while I’ve got large debts. As my card balances lower, then my capacity to cope with emergencies will grow as the amount of available credit I have increases.
Not the best situation to be in, but I think it’s the most reasonable approach under the circumstances. Once my debts are cleared then the first thing I shall do is build a meaningful emergency fund.

When I finally get to my DFD (debt free day) I think that having a minimum of four months living expenses plus 5% of the value of my house should be my goal. My living expenses are £1,000/month ($1,600) and 5% of the value of my house is £6,500 – so an emergency fund of £10,000 ($16,000) should do me quite nicely.

However – It would make a piece of my heart shrivel and die knowing that I had this amount sitting in a bank doing nothing. So in all honesty I would probably have 50% of it on instant access deposit, and the remainder in some sort of short dated corporate bond fund – where I would at least hope to get a return that beats inflation.

I’ve described above what I’ve done so far and what I intend to do in the future, but how big your emergency fund should be is a purely personal matter. What works for one person, doesn’t necessarily work for another.
Peoples living expenses vary, things like whether you are a home owner or not come into the equation.
Home owners need a larger emergency fund as they might have expensive boiler, furnace or household repairs to undertake which renters just get their landlord to do.
Also – things like the number of children you have, the earning capacity of your partner, and your attitude to risk all have a bearing on how much of an emergency fund you are comfortable.

If you sit down and think about how many different things might spring up and make a claim on your time or cash it can be quite a sobering experience.
Having the cash at hand to deal with lifes unwanted but half expected events should take the pressure off slightly and help you sleep better at night.

Not having the cash might financially break you – beware.

How big should your emergency fund be – what do you think ?


  1. My belief is that there are a significant number of factors (e.g. size of family, job security, age of appliances, etc.) that goes into determining the adequate size of an emergency fund. It really is a highly personal decision and there is no one right answer. I typically suggest three months living expenses as the minimum for an emergency fund. Based on my recent experience with the government shutdown and furlough on this side of the pond, I have decided to increase my emergency fund to $20,000.

    • Even the most secure job can be insecure these days. In the UK, bank, teaching, and many other government funded jobs used to be bullet proof. In modern times this is no longer the case. No such thing as a job for life anymore. Adjust the size of your emergency fund to suit.

  2. “but how big your emergency fund should be is a purely personal matter.” is a very true statement. Even for the same people, at different times in your live you will have different needs on how much cash to keep. As a general rule, however, I would never invest money that I might need to live. We currently have a years worth of income in savings. But then, we are retired and would probably need that year to find work if our retirement income dried up for some reason.

    • I’m still quite a way off retirement – but can see why you wouldn’t want to invest money that you might need to use to live off once you’ve retired

  3. I agree with it being a personal decision. I base my emergency savings off of the follow:
    1.) Covers all of my insurance deductibles (which I keep as high as the insurance companies will let me).
    2.) Covers 6 months of living expenses.

    My immediate goal is to get it up to $6,000, which would do both those things on a very tight budget. I’m aiming overall to get it to $10,000 and then invest $7,000 of it in a fund like DIA or some broad stock market fund, where it’s easy to access and somewhat safe.

  4. There are many factors that can affect how much an emergency fund should be especially for a big family. The bigger, the better, I guess. After all, you really can’t tell the kind of emergency you will be facing.

    • And sadly Jen – you tend to find that the bigger the family the less disposable income people have.
      Raising children is a very expensive process.
      If you only have one or two children – building a financial firewall around your family is achievable. Once you get above this number – for most people it turns into an impossible dream.

  5. A family with one income needs a bigger emergency fund than a family with two, because there’s less slack in the budget. That being said, by goal is to eventually build up a five-year emergency fund, at which point, I’ll retire!

    • You make some great points there Annie – so true that a single parent has it harder – true in many ways.
      Good luck with the 5 year emergency fund

  6. I think it’s a personal thing that really depends on a variety of factors: age, income, dependents, etc. In my case, I like the idea of 6 to 9 months as a good starting point. 9 to 12 is even better. But again, that’s for me and this might not apply to all.

  7. My perspective on this has really changed over these recent couple of years. My wife and I were huge savers. We literally have had more than $100,000 cash sitting in the bank for that emergency situation. More recently, I’ve come to realize just how utterly stupid this was. If we had invested this money, we’d be years closer to retirement/financial independence by now.

    Now, we’ve all heard the recommended six months to one year of expenses should be saved sitting there in cash. If you’re a US citizen, did you know that you can extract your IRA capital (not the interest earned) without penalty? This means if you’re putting in $5,500 a year ($11,000 combined if you’re married) that you have a basic free emergency fund if it is needed for a TRUE emergency. Not sure if they have something similar in the UK.

    After learning this, we’ve been trying to invest almost all of our money in 401K, IRA, and personal investing accounts where then have it waste away due to inflation.


  1. […] aside for emergencies but we’re hoping to build that up to 6 months of living expenses soon. Get Rich With Me suggests maybe a good goal is 4 months living expenses plus 5% of the value of your home. An […]

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