How much should I have in an emergency fund?

When building an emergency fund, one consideration is how much to put into it. Ideally, you’d have enough to weather a substantial unexpected expense, like a major car repair or a large medical expense, without taking on debt to cover it.

Even more ideal is having a large enough emergency fund to cover all of your necessary living expenses for a number of months if you find yourself without any income, such as due to a job loss.

Conventional wisdom advises that we should keep three to six months’ worth of our monthly living expenses in an emergency fund. But many variables influence what the right amount is for you.

For instance, someone who’s the sole breadwinner for a family has more people depending on their income, and is therefore better served by a larger emergency fund than, say, a single person with few expenses, or a couple in which both partners have good-paying jobs at different companies.

The nature of one’s income also plays a role. Someone with excellent job security who gets paid regularly and predictably can get by with less of an emergency cushion than someone who works freelance and gets paid sporadically. The same could be true for those who are paid in bonuses and commissions.

Your monthly expenses also matter. If you have little or no debt, and many of your expenses are discretionary, such as dining out, travel, and entertainment, it would be easier for you to tighten your financial belt if needed and therefore manage with a smaller emergency fund.

But if your monthly expenses are dominated by debt payments, such as a very large mortgage or other significant obligations, an emergency fund becomes critical, as you don’t want anything to jeopardize your ability to always make your mortgage and other debt payments.