You’ve likely long heard that you should have 6-9 months of expenses socked away in your emergency fund – ideally in a safe and accessible spot like a savings account (the good news: some financial institutions like these are now paying 1.25% or more). “Availability is paramount. Exposing your emergency fund to risk means taking the chance that, in an emergency, the money will not be there for you,” says Zack Hubbard, certified financial planner at Greenspring Advisors.
But does everyone need 6-9 months of expenses in savings, especially in times like these when inflation eats into lower earnings savings quickly? Ultimately, it’s about being able to afford your essential expenses like housing and food in the event of a job loss or another emergency. And, says, Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally, it’s also about what makes you personally feel comfortable. “If the amount has to be closer to nine months then that benchmark is right for you. However, if the money is just sitting in a savings account and not being invested, given the rate of inflation compared to what you receive in interest earnings from that savings account, it is losing value,” says Rebell. That’s why, she says, you shouldn’t put all your money into savings. “We want your money to work for you,” says Rebell.
So to that end, we asked experts: Who might be able to get away with less than 6-9 months of expenses in savings?
Dual-earner households with steady, predictable paychecks may be able to get by with a cushion of less than 6 months’ expenses, says Greg McBride, chief financial analyst at Bankrate. But, he cautions, “the opportunity cost of having more emergency savings is much lower than the actual cost of not having enough” — and most households are already under-saved. Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally, offers similar advice, noting that: “If you’re a multiple income household and in different and unrelated industries, that can factor into the mix.”
Financial planner Mamie Wheaton at LearnLux explains that the reason dual earner households may be able to get away with less is that the likelihood of both partners not being able to bring in income is slim. But, she adds, if you’re the sole breadwinner for your family, you’ll want to consider an emergency fund closer to six months and if you’re self employed, set your ultimate goal at nine months of expenses set aside. (See the highest rates you can get on savings accounts now.)
Another instance when you can get away with less? When “you have access to cash in other ways such as a home equity line of credit (HELOC),” says Rebell. And “those with significant assets, especially ones that are highly liquid and marketable, like taxable investments can feel more comfortable keeping less cash knowing they have other sources to tap when the unexpected happens,” says Lauren Anastasio, director of financial advice at Stash, an online financial platform.
The type of job you have matters too. “The security of your job makes an enormous difference in the level of required emergency savings. If you’re a tenured college professor or career government employee, then you likely don’t need a large emergency fund,” says certified financial planner Matthew Jenkins at Noble Hill Planning.
How to build up your emergency savings faster
“To build the fund, setting up an automatic deposit can encourage commitment to a monthly amount of savings,” says certified financial planner Troy Jones. And remember that building an emergency fund takes time and doesn’t happen overnight. “Focus on getting to one month of expenses. Once you have reached your one month, continue building, but you can also allocate money towards other goals like debt acceleration or saving for retirement,” says Wheaton.