How big should my emergency fund be?

What is a financial emergency?

Before we move on, emergency savings is a certain amount of money that is held in a safe, easily accessible place, such as a bank account, to be used in an emergency.

An emergency is something that is truly unpredictable such as losing our job, a major medical catastrophe, or a leaking roof. A once in a lifetime type event.

A car repair or Christmas presents are not emergencies. These are expenses that occur not too often. But we know they will happen, we just don’t know when. We should leave room in our budgets for these items.



A lot of advisers will commonly say 3 - 6 months of expenses. The reason being, they anticipate we will need to tap into this fund if we suffer a major job loss. The emergency fund should be large enough to cover our expenses during this period, which is typically 3-6 months before we can find a new job.

However, there are many variables unique to our situation and how much emergency savings we have depends on our answers to the following 11 questions:

1/. Do you have a reliable source of income? Seasonal or temp workers should have larger emergency savings because they have less job security and it can take longer to find a job.

2/. Do you have debt? This doesn’t mean good debt like student loans or mortgages. I am referring to bad debts such as credit cards and car loans. It doesn’t make sense to have a large emergency fund when we have high interest debts to repay. High interest debt needs to be a priority. That is our emergency. No savings until this is paid off.

3/. Can your monthly expenses be cut? In other words, if times got tough is there much fat in your budget. If we have lots of room to cut expenses then we will not need as many months’ worth of emergency savings.

4/. What is your tolerance for risk? Risk averse people will need much more in their emergency savings fund. It may not always make financial sense, but money is more than financial. We must also consider the psychological relationship we have with money. If having extra money sitting in an emergency fund is the difference between peace of mind and not, then who are we to argue?

5/. What is your skillset? If you are in a highly specialised industry with few job openings, you may need to save more to hedge against extended periods of unemployment.

6/. What is your age? Not always true, but older workers may find it more difficult to find jobs due to discrimination. Older workers are also closer to retirement and may not want as much risk in their lives. These factors would lend to a higher emergency fund.

7/. Do you have a partner that works? Having 2 people in the household working, decreases the cushion of how much you need to save. If one of you lose your job, then there is still one income to fall back on. You would not need as much reserved for emergencies. It would be extremely unlucky to both lose your job at the same time. However, if you are a risk averse person, it may be best to plan on the worst-case scenario.

8/. Are you likely to experience an emergency? Some emergencies are completely out of the blue, we can’t predict them. However, there are many emergencies that are a bit more predictable. Do you have pre-existing health problems? Do you have children/parents with disabilities? Is your relationship rocky? People with health concerns or in rocky relationships might want to err on the side of caution with a bigger emergency fund.

9/. Do you have comprehensive health, life and house insurance? The less comprehensive our insurance policies, the higher our emergency savings will need to be.

10/. Do you have other liquid accounts you can tap into? If you have money in a share or bond account that you can access straight away if needed, you may not need as large an emergency fund. Likewise, if you have an interest free period on your credit card you can tap into. Just make sure that you can get the money repaid before payment is due. These strategies are the most dangerous and we must be a master of our money to employ these or we may find ourselves in more trouble than we begun with. 

11/. How quickly can you save up an emergency fund? The longer it takes you to save, the higher your fund should be. This is because when an emergency hits and we already have trouble saving, we will need as much of a head start as we can get. When times get tough we will find it more difficult than someone who can save more quickly.

How we answer these questions will determine whether we need any emergency savings at all or 2 years’ worth. Maybe even more. This is why I believe the generic 3 – 6 months advice is flawed, because it doesn’t account for personal circumstances. It is a good starting point though. And I can’t fault the premise, as it is encouraging people to save.



I always used to have an emergency fund of ZERO. I was single and young with a high tolerance for risk. I felt I had a steady job and I had a good amount of savings. I didn’t keep the savings in a low interest rate emergency fund though. I had it invested in higher return, higher risk, stock index funds. I was of the thought that if I ever had an emergency I could either tap into this account or use my credit card free interest 50-day period. This suited me at the time.

Since then, things have changed. I have got married and have a young daughter and can’t think of myself anymore. On top of this, we are now a single income household. I no longer feel comfortable with high levels of risk with regards to our emergency fund. By using the cash in our stock index fund, I risk selling them when markets are low and losing a lot of money. I was no longer comfortable with this strategy.

We have since put 10 months of savings into an easily accessible online savings account with our bank. Yes, we are not getting as much return for our money, but we have eliminated a lot of risk and it helps us to sleep at night knowing we have that safety net ready and available when needed. I don’t think a price can be put on that.

Shop around the banks for the best rate. We don’t have to be loyal to one bank. We can even have some accounts at one bank and our emergency savings account at another bank. Just make sure you look at any extra fees that may be charged, especially if your account is below a certain level. Having our emergency fund in a separate bank can be a great option for those of us that are more likely to use that money for non-emergencies! The extra hassle of having to make the extra withdrawal steps required can be enough of a deterrent to keep us at bay. To take it even further we could also not order a card with our separate bank. Making it even more difficult and deliberate to unnecessarily spend our emergency funds. 

The key is to be able to access the money quickly if needed. There will be nothing worse than needing the money but needing to wait a few weeks for your term deposit to expire. The extra stress is probably not worth the few extra dollars you will get from a higher interest rate locked in account. 

Other higher interest options may include: a fixed interest index fund, revolving credit or offset mortgage accounts. These accounts still fit the criteria of an emergency savings account. Safe and easily accessible.

If we end up having to use the emergency fund, then it will need to be replenished to the same point. Or if your annual spending increases due to inflation, lifestyle changes, or any other reason, you would need to top it up to the new level too. 



How much we have saved in our emergency savings depends on many factors unique only to our situation. Assess your situation and make the decision based on your answers, not based on some generic recommendation from so called experts who don’t even know you.

If we don’t have cash that we can easily access at any time, we are more than likely to end with short term, high interest debt when things do go wrong. Don’t be like a lot of other New Zealanders with the she’ll be right attitude and nothing will go wrong for me. It can and it will. The least we can do is be prepared.

If you are like me, your feelings will change over time on what is best for your situation. Review your situation every few years, and increase or decrease your fund as your situation changes.

When you experience an emergency wouldn’t you rather focus on fixing the emergency than the additional stress of worrying about how to pay for it?



The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here


Do you have any comments?  How do you determine the size of your emergency fund? Do you struggle to save for an emergency fund? Where do you keep your emergency savings?

I’m also interested in hearing if you either have no emergency savings or have emergency savings worth over 1 year of expenses. I’d like to hear from the two extremes.