How Large Should Your Emergency Fund Actually Be?

Three to six months of expenses is the advice everyone has heard. It is a reasonable starting point and a poor stopping point, because it ignores the variable that matters most: how quickly you could replace your income if it stopped.

The variables that actually matter

• Income stability — a salaried role in a large organisation is not the same risk as consulting income
• Number of income earners in the household
• How specialised your skills are, and therefore how long a job search realistically takes
• Fixed obligations that cannot be reduced quickly, such as school fees or loan repayments
• Access to other liquidity that does not carry a penalty for early use

Working it out

Start with your genuinely fixed monthly obligations rather than your total spending. Multiply by a realistic job-search period for someone with your profile. Adjust upward if your household depends on a single income.

For many self-employed clients the honest answer lands closer to nine months than three. For a two-income household with portable skills, three may be sufficient.

The fund should sit somewhere accessible within days and not be invested in anything that can fall in value precisely when you need it. That constraint costs you return, and that cost is the point.