In this post, I will share my view on how much emergency funds do you need.
What is an emergency fund?
Before we go further, do you have an emergency fund?
If you are not sure what is an emergency fund, it is money put aside to cater for unexpected events in life.
Among the examples are as below:
- when your car suddenly broke down
- when you or your loved ones suddenly need medical supports
- suddenly you lose your job
- retrenchment or a change in your employment
Basically, these are unforeseen circumstances in life.
How much emergency fund do you need?
If you have one, the next question would be how much emergency fund do you need.
And if you read financial articles, you will notice that financial experts recommend between 3 months to 6 months expenses in your emergency fund.
Some even recommend for a minimum of 12 months expenses to be ready in your emergency fund.
Personally, I believe how much you need in your emergency account depends on several factors. I listed the factors below:
1. Stability of the source of your income
If you are in a stable career, 1 to 2 months expense is good enough for you.
Else, it will be wise for you to have at least 3 to 4 months of expenses in your emergency fund.
2. Your ability to replace the source of income
If you are in a profession where it’s easy for you to find a new job, then 1 to 2 months expense is good enough for you to survive.
On the other hand, if you find that from your previous experiences, you had difficulties finding a new job, then to be on the safe side, it is advisable to have at least 4 to 6 months of expenses in your emergency account.
3. The number of dependents
For single adults, you will be able to adapt to yourself when you find that you need to spend less so that the emergency account can last longer.
But, if you have a family and you are the sole breadwinner, make sure your saving will cover at least 4 to 6 months of your family’s needs.
Because some family members especially newborns, young babies and ageing parents will not be able to tolerate their needs according to the balance in your saving account.
Read more: 10 reasons why we must have multiple sources of income
Final words
How much you need in your emergency account is a personal decision.
If you don’t have one, it is never too late for you to work out your plan and learn how to start an emergency account now.
If you already have one, make sure you have enough funds based on your own needs.
With these, I trust you will be able to sleep better at night.
Read more: The wise thing I did with my bonus
photo credit: marcoverch Sparschweinchen, Münzen und ein Hammer via photopin (license)
You have a good blog. Give me some idea about RM, GBP, $$, etc..hehehe…
To be honest, I am a spendthrift! I am 30 now and I just realize that I am ‘late’ to save. However, I was so blessed because my bf taught me something last time. “Make sure you save at least 10% every month of your salary”. This was he said to me last time. I did save and when it came to emergency, I have at least some money. I met a financial advisor before I left to the States. She advised me to save about RM700 per month for my retirement. I couldn’t pursue this planning as RM700 was too much! I went to overseas and needed money. So, I continue the 10% of my salary every month.
Like I mentioned above, I started to be matured in my financial. I started to buy some Unit Trust funds. Now I am pursuing my study- again I need to save and use my emergency account sometime.
So I have to learn NOT to be a spendthrift anymore! What a life yeah!