Do I Need a Bigger Emergency Savings Fund During the Pandemic?

Having emergency savings is always important. But these days, it pays to pad that account even more.

You've probably heard time and again that it's important to have a healthy amount of money in your savings account. A good rule of thumb is to have three to six months of essential living expenses socked away in an emergency fund. That way, if you lose your job or are forced to take time off for an extended period, you can pay your bills. Having a solid emergency fund can also come in handy when any unplanned expense lands in your lap and your regular paycheck can't cover it -- things like car repairs, home repairs, or last-minute travel to see an ill family member.

If you already have three to six months of living expenses in the bank, congratulations -- you're in a good place. But given the coronavirus pandemic at hand, you may want to pad your savings even more.

Why it pays to have extra savings right now

The U.S. isn't just dealing with a health crisis; our economy is in a recession, and unemployment levels are sky-high. As a result, more jobs are in danger now than in normal times, and if you get laid off in the coming weeks or months, it might take longer than usual to find a new job.

The good news is that if you lose your job through no fault of your own (you're not fired because you did something wrong), you're generally entitled to unemployment benefits. But those may not come close to replacing your paycheck in full, which is why you still need cash reserves. And the more money you have at your disposal, the easier it'll be for you to ride out a period of unemployment -- even an extended one.

Furthermore, borrowing money may be more difficult during the pandemic and recession. A lot of lenders are getting stricter about loaning, and are requiring better credit scores than before. Some lenders are pulling back on home equity lines of credit, which is normally an affordable way for homeowners to borrow. Given these circumstances, it pays to rely more on your own savings, and less on outside sources of money.

How much extra money should you put in your emergency fund?

Many Americans are struggling financially, but if you're employed, you may find that it's easier to save money now than it normally is. Why so? If you're working remotely, you could be saving a lot by not having a commute. If you're not going out on weekends or dining at restaurants like you normally would, there may be some savings there. And if you're canceling travel plans, there's a solid opportunity to bank some money.

If you're sitting on extra cash, it wouldn't hurt to put an extra one to three months' worth of living expenses into your savings, depending on where you already are. For example, if you have three months of expenses in the bank right now, it wouldn't hurt to aim for six months' worth. On the other hand, if you have enough in savings to pay for a half a year of expenses, you may want to add just a month's worth of bills as an extra cushion.

Of course, it's never a bad thing to have a heftier emergency fund. While you don't want to go crazy and put all of your money into a regular savings account (doing so means you'll earn minimal interest on that cash, whereas investing it could score a much higher return), right now, erring on the side of caution is certainly a good idea. If you sock away extra cash for emergencies and find that it's still there once the pandemic ends and the economy recovers, you can always pull that money out and invest it or use it as you please. But right now, extra money could mean extra peace of mind, and that's important during these uncertain times.