Why I Insist on Having 12 Months' Worth of Living Expenses in My Emergency Fund

It's an unfortunate fact that many Americans do not have enough money in their savings accounts to cover surprise bills and routinely risk credit card debt because of it. A recent SecureSave survey, for example, found that 67% of Americans could not cover an unplanned $400 expense by dipping into their savings.

To be clear, though, a $400 savings account balance, though better than $0, is really not enough to be considered a complete emergency fund. The general rule of thumb is to try to save enough money to cover at least three months' worth of living costs. And if you can aim for more like six months' worth, even better.

Now, in the wake of the pandemic, some financial experts have said that an emergency fund to cover 12 months of living expenses wouldn't be going overboard. Suze Orman is one of them. But the reality is that the typical worker can probably get away with a three- to six-month emergency fund.

I, however, insist on keeping 12 months' worth of bills in the bank. And I have some very good reasons for it.

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When there's no other safety net to fall back on

Salaried employees who lose a job through no fault of their own can generally qualify for unemployment benefits. Those won't provide 100% replacement income, but they'll at least amount to something.

But because I'm self-employed, unemployment benefits aren't something I'm eligible for. It's true that at the start of the COVID-19 pandemic, lawmakers changed the rules so gig workers could collect unemployment due to the massive economic crisis at hand. But I'm hoping we'll never experience a similar event again. And as such, I have to assume that unemployment benefits are perpetually off the table for me. This means that if I were to lose my job, I'd be fully reliant on my savings to cover my bills while looking for work.

Additionally, my income is variable. Many of my bills, however, are not -- like my mortgage. As such, I like to have a higher cushion in the bank in case my income takes a hit.

I'm not just responsible for myself

If I were single and lived alone, I'd perhaps have a smaller emergency fund. That's because I'd be willing to cut back on spending drastically if need be to cope with a period of joblessness.

But because I'm financially responsible for my kids, I wouldn't want to put them in a position where they might have to pull out of sports or activities, or skip events with their friends, due to money being tight. Also, I'd be willing to eat instant noodles for weeks on end in the event of a lost job. But I wouldn't want my kids to have to do the same (though to be fair, noodles for dinner every night would probably be their jam). So for their sake, I keep extra money in my emergency fund.

Plus, I happen to have a dog with some medical issues that are manageable at present, but could get worse over time. I wouldn't ever want money to be the reason he couldn't get the care he needs. So that, too, inspires me to keep more cash in the bank.

All told, a 12-month emergency fund makes sense for me. It may be more than what the typical American needs, but it's what I need to be able to sleep at night and not spend my days worrying about money.