While many people know that having an emergency fund is an important element of their financial plan, a lot of them struggle to figure out the correct target for their situation. The fact is, while you can use the standard rules of thumb that say 3-6 months is good, it’s important to consider why you decide to set your target where it is.

Here are a few of the factors I consider when coaching folks through their financial plans, as well as setting my own emergency fund target.

The Bare Minimum

Even the most risk embracing individuals should have some level of cash on hand for those random emergencies in life. It’s these times, when funds are needed quickly and conveniently, that risking selling investments or assets at a loss isn’t worthwhile. So, even though you might have a full breadth of financial assets available to you at any given moment, having some reserves in cash can be critical to your ability to sleep at night.


Targeting 1-2 months of necessary living expenses as a bare minimum level of cash on hand in easily accessible and liquid accounts.

Income Sources

One key aspect of determining the size of your emergency fund is to determine where the income you currently depend on comes from. The greater the likelihood of this income being disrupted, the more you might consider increasing your total cash on hand. For instance, if your current retirement income comes from a mixture of social security benefits and the dividends and interest from a widely diversified portfolio, the risk to your income may not be too great. On the other hand, if your current income comes from economically sensitive employment such as the hospitality industry or commission from sales, the risk of your income being disrupted is much higher.


If your income comes from all low-risk sources, consider adding 0-1 months to the bare minimum above.

If your income is mixed between low and high-risk sources, consider adding 1 month to the bare minimum above.

If your income sources are all high risk, consider adding 2 months to the bare minimum above.

Family Size

Family size is a massive factor when considering the amount of risk you desire to take with your financial life. Typically, when planning for a single individual without any dependents, there is a higher willingness to take on some risk. On the contrary, as a spouse and, potentially, as a parent, the desire for risk usually begins to diminish.


If single, add 0-1 months to the above.

If an income-earning partner is in the mix, consider adding 1 month.

If a non-income earning partner is in the mix, consider adding 2 months.

If dependent kids, parents, or others are in the mix, consider adding an additional month.

Job Security/Marketability

Vocations can vary wildly in their level of security but also their general marketability through various economic or event cycles. For instance, an individual specifically trained in engineering in the energy sector may find it difficult to find work during periods when this area of the economy struggles. In contrast, a healthcare worker or college professor may generally find their position in demand across a range of economic conditions. It’s important to consider this risk when assessing your cash fund requirements.

If your job is highly secure or marketable, consider adding 0-1 months to the above.

If your job is not secure, but your skills are highly marketable across industries, consider adding 1-2 months.

If your job is not secure and your skills are not very transferrable, consider adding 2-3 months.

Risk Appetite

Your willingness to take on risk is another important element to consider because your emergency fund is a level of insurance against risks in your financial life. Therefore, the greater your willingness to accept and be affected by risk the smaller your fund can potentially be. However, the more averse you are to the general ups and downs of life and how these affect your finances, the more you may wish to increase the level of your cash reserves. Note, you may also consider the overall risk of your invested funds since the riskier your investments are the more likely they are to experience volatility at the same time you need some extra cash.

If you have a high risk appetite, consider increasing your reserves 0-1 month.

If you have a moderate risk appetite, consider increasing 1-2 months.

If you have a low risk appetite, consider increasing 2-4 months.

Stage of Life

The final consideration of this non-exhaustive list is simply where you are on your financial planning journey. Typically, those with a greater income earning time horizon tend to require less in reserves as they can balance some of life’s risk with the fact they have many income producing years ahead. Those who are getting closer to or are in retirement may wish to set aside more in cash to more easily navigate life’s ups and downs as they come along.

Greater than 10 years to retirement, consider adding 0-1 months.

0 to 10 years to retirement, consider adding 1-2 months.

In retirement, consider adding 2-3 months.

Personalize Your Range

As you can see, once you start to think through some of the different factors that influence emergency fund levels, the range can be quite wider than a typical “3 to 6 month” rule of thumb amount. In fact, using some of the guidelines above could result in an emergency fund of between 1 to 18 months! However, customizing your emergency fund to your scenario means that it may work more closely with your dynamic life circumstances and allow you to have the resources on standby when you need them the most.