4 Reasons to Boost Your Emergency Fund

Most people need three to six months' worth of living expenses in the bank. Here's why you might need more. Image source: Getty Images.

There are certain expenses in life we can all predict, like our upcoming rent or mortgage payments, utility bills, and food costs. Then there are those financial surprises that pop up when we least expect them -- things like car repairs, medical bills, and periods of unemployment.

To protect ourselves from costly debt during those times, we all need emergency savings -- money in the bank that's only to be touched when unplanned expenses arise. Most people are advised to sock away three to six months' worth of living costs, since that amount of money could, conceivably, cover a large bill or a few months of missing paychecks. Here are a few scenarios where it might pay to boost your emergency fund even more.

1. You just bought a home

Homeownership has many benefits -- tax breaks, autonomy, and a chance to plant some roots. The drawback of buying a home, however, is that you suddenly become responsible for every little thing that could go wrong with it. Make no mistake about it -- some of those things are expensive. Replacing a roof or heating system, for example, could be a multi-thousand-dollar affair. That's why buying your own place might prompt you to stick a little extra cash in the bank. That way you're less likely to deplete your emergency fund in a single swoop.

2. You're having a baby

Having a baby could mean facing a host of expenses, from childcare to furniture to supplies. Furthermore, you might end up taking a longer period of parental leave than expected, leaving you without a paycheck for quite some time. Boosting your emergency fund, therefore, might alleviate much of the financial stress new parents tend to experience. Doing so might also buy you the leeway to return to work at a later date, thereby helping you better adjust to your new family dynamic.

3. Your job is looking shaky

While layoffs can happen without warning, there are often signs leading up to them. If you're suddenly excluded from meetings, taken off big projects, or ignored by your boss, it could be that your job is on the line. Similarly, if your company experiences financial upheaval, whether it's a lawsuit, a failed product, or lackluster sales, you might find yourself out of a job even if you're an otherwise hard worker with a solid performance history. If that's the case, it pays to start socking away more money in your emergency fund. That way if you are let go, and it takes longer than expected to find a new job, your finances won't suffer quite as much as a result.

4. You're going freelance

The benefit of being a salaried employee is having a consistent paycheck to look forward to. When you go from a predictable income to one that's variable and far less secure, you risk falling behind on your bills during slower periods of self-employment. Even if you're expecting a steady stream of work under your new arrangement, remember that your clients might pay you at different times, or, unfortunately, not pay you at all. Having extra money in the bank will help you avoid scenarios where you can't pay your expenses due to cash flow issues.

Let's be clear: You don't want to overfund your emergency savings, because that money is meant to be kept in cash. As such, it won't grow the way money invested in the stock market can. At the same time, it never hurts to exceed the generally recommend three-to-six-month threshold if these unique circumstances apply to you. That could mean socking away eight months of living expenses, or even up to a year's worth. The key is to figure out how much peace of mind you're looking to attain, and how much money it'll take for you to get there.