Emergency Funds Used To Be 3 to 6 Months of Expenses, But This Is What People Really Need Today

Key takeaway: Three to six months is a fine starting point, but many households need more, and the number should be based on essential expenses only.

Michael McAuliffe, president and founder of Family Credit Management, says the traditional guideline of three to six months of expenses is a good place to start but is no longer enough for most people. In today’s economy, he recommends six to eight months without hesitation, because job searches take longer, medical costs keep rising, and housing costs leave less room for error. He says households with dependents, a single income, self-employment, a volatile industry, or large fixed expenses like a mortgage should lean toward the higher end. Even a stable two-income household shouldn’t drop below three months, which he calls the floor, not the target.

To calculate your number, he suggests counting only essentials such as housing, utilities, groceries, transportation, minimum debt payments, and non-negotiable medical or childcare costs. Leave out dining out, subscriptions, and entertainment. He also recommends keeping the fund in a high-yield savings account at a different bank than your checking account, and starting with $500, then $1,000, with an automatic transfer on payday.

Q: How much should I have in an emergency fund?
Michael McAuliffe recommends six to eight months of essential expenses for many households, and no less than three months.

Q: What should I include when I calculate my emergency fund?
Include essentials only, such as housing, utilities, groceries, transportation, minimum debt payments, and non-negotiable medical or childcare costs.