Ask the Expert: What is a Good Amount for an Emergency Fund

Generally, an emergency fund should cover at least three to six months’ worth of your living expenses. The ideal amount varies based on individual circumstances. The fund should be able to cover your essential expenses such as rent or mortgage, utilities, groceries, insurance, loan payments, etc. 

Here are some things to think about when trying to decide on the size of the emergency fund:

• Is your income stable? Is the industry you work in vulnerable? If your income is stable or you have another source of income, the lower end of the three to six-month scale might be suitable.  However, if your income varies or is less predictable, as could be the case if you are self-employed, then six months or more might be more suitable. Likewise, some industries are more vulnerable, as we saw during the COVID-19 pandemic when travel and movement of people were restricted. If you work in a vulnerable industry, you might want to consider a larger emergency fund.
• Do you have any health concerns? You might need a larger emergency fund if you have known health issues because even if you have health insurance, it might not cover all the medical bills.
• Do you have any dependents? If you have someone who you support financially such as a parent, child, sibling, close family member or friend, it would be wise to have a larger fund.

If you cannot immediately meet the three-to-six month benchmark, do not be discouraged.  Something is better than nothing!  Start small and gradually build up. The important thing is that you have started to save, and over time you will reach your goal.

Lydia R. McCollin, FCCA, FCA, is the Managing Director of LRM Consulting Services Inc.

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