3-Month, 6-Month, or 12-Month Emergency Fund: Which Is Right for You?

by Lyle Daly | Updated July 17, 2021 - First published on May 28, 2021

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Each emergency fund option has its pros and cons. The key is finding the one that fits your financial situation.

For years, the standard recommendation was to have three to six months of living expenses in your emergency fund. If you lost your job, you'd presumably have enough to get by until you found another. Not everyone agrees, as some think a 12-month emergency fund is more prudent. That idea became even more popular as the COVID-19 pandemic left many out of work for a long time.

The size of your emergency fund is an important decision. Save too little, and your emergency fund could run out when you need it. But saving too much can be problematic, too. If your emergency fund has thousands more than necessary, that's money that could've been invested with a stock broker or used for other goals. This guide will cover how to choose the best emergency fund size for your needs.

Three-month emergency fund

A three-month emergency fund is widely considered the minimum to aim for. It potentially allows you to grow your money more, because you'll be able to put more into investment and retirement accounts. If you have any high-interest debt, then it could also be worthwhile to have a smaller emergency fund while you focus on paying off that debt.

But there is significantly higher risk with a three-month emergency fund. It isn't much of a financial cushion. If you find yourself out of work or otherwise in crisis, three months isn't a lot of time to get back on your feet.

Despite the risks, here are a few situations where this size emergency fund can work:

  • You could cut or reduce many of your bills, extending how long your emergency fund lasts.
  • You have a large amount invested and could convert some of those investments to cash in a pinch.
  • You and your significant other each make enough individually to cover all your bills.

Six-month emergency fund

A six-month emergency fund gives you a balance between security and flexibility. It offers much more breathing room than three months of living expenses. At the same time, it doesn't require nearly as much money as a 12-month emergency fund. That balance makes the six-month emergency fund a popular choice.

Some people prefer a larger or smaller emergency fund. You might decide that saving less is better if you want to put more toward investments. Or, if you're worried about not having enough saved, then you may opt to boost your emergency fund. But as it's between those two ends of the spectrum, a six-month emergency fund could be the option that feels just right.

12-month emergency fund

A 12-month emergency fund provides the most financial security. This can be a big benefit, especially because it can give you more freedom in the life choices you make. Imagine that you're considering a major change, such as moving or leaving a job you dislike. When you have a full year's worth of living expenses saved, you may feel much more confident taking risks like these.

The drawback of a 12-month emergency fund is the amount of money involved. It's a lot to save and a lot to have committed strictly to emergencies. On the bright side, you can collect a reasonable amount of interest with the best high-yield savings accounts.

Many people could choose to work on saving this much for their emergency fund. But there are some cases in particular to strongly consider saving 12 months of expenses:

  • You're supporting a family and you're the primary source of income.
  • You have mostly fixed expenses that would be hard to cut or reduce in an emergency.
  • You feel more comfortable with an emergency fund of this size.

Building the perfect emergency fund

Most of all, your emergency fund needs to work for you. Many people find that a six-month emergency fund works well. If you're not sure what to do, then saving for six months is a good one-size-fits-all solution.

The other sizes of emergency funds have their merits, as well. You could go with a three-month emergency fund if you feel financially stable and prefer to invest more. If you want to feel as financially secure as possible, you might decide a 12-month emergency fund is best.

When you're getting started on your emergency fund, saving months of living expenses may seem like a lofty goal. It's still a good idea to think about how much you want to put away. Having a target gives you something to work toward, keeping you motivated.

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