You’ve probably heard for a long time that you should have 6-9 months worth of spending in your emergency fund – ideally somewhere safe and accessible like a savings account (the good news: some financial institutions like these are now paying 1.25% or Continued). “Availability is key. Putting your emergency fund at risk means taking the risk that in an emergency the money won’t be there for you,” says Zack Hubbard, Certified Financial Planner at Greenspring Advisors.
But does everyone need 6-9 months of savings spending, especially in a time like this when inflation is rapidly eating away at lower income savings? In the end, it’s about being able to afford essential expenses like housing and food in the event of job loss or other emergency. And, says Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally, it’s also about what makes you personally comfortable. “If the amount needs to be closer to nine months, then this benchmark is fine for you. However, if the money simply sits in a savings account and is not invested, given the rate of inflation against what you receive in interest on that savings account, it loses value. says Rebell. That’s why, she says, you shouldn’t save all your money. “We want your money to work for you,” says Rebell.
So, to that end, we asked the experts: Who might be able to get away with spending less than 6-9 months in savings?
Dual-income households with stable, predictable paychecks may be able to get by on a spending cushion of less than 6 months, says Greg McBride, chief financial analyst at Bankrate. But, he warns, “the opportunity cost of having more emergency savings is much lower than the true cost of not having enough” – and most households are already undersaved. Bobbi Rebell, author of Launching Financial Grownups and personal finance expert at Tally, offers similar advice, noting that: “If you are a multi-income household and in different, unrelated industries, this may be considered.
Financial planner Mamie Wheaton of LearnLux explains that the reason dual-income households can get by on less is that the likelihood of both partners not being able to generate income is low. But, she adds, if you’re the sole breadwinner, 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 set aside expenses. (See the highest rates you can get on savings accounts now.)
Another case where you can get away with less? When “you have access to cash through other means, like a home equity line of credit (HELOC),” says Rebell. And “those with large assets, especially those that are highly liquid and marketable, such as taxable investments, may feel more comfortable keeping less cash around knowing they have other sources to tap into. when the unexpected happens,” says Lauren Anastasio, director of financial advice at Stash, an online financial platform.
The type of job you have also matters. “Your job security makes a huge difference in the level of emergency savings required. If you’re a tenured college professor or career government employee, you probably don’t need a big emergency fund,” says Certified Financial Planner Matthew Jenkins of Noble Hill Planning.
How to build your emergency savings faster
“To build the fund, setting up an automatic deposit can encourage commitment to saving monthly,” says Certified Financial Planner Troy Jones. And remember that building an emergency fund takes time and doesn’t happen overnight. “Focus on one month of spending. Once you hit your one month, keep building, but you can also allocate money to other goals like debt acceleration or saving for retirement,” says Wheaton.