Emergency Fund – How Much Is Enough?

by Pam on August 13, 2009

Most people are familiar with Suze Orman’s advice about saving up 8 months worth of living expenses as an emergency fund.  It seems like an awful lot of money, but I can definitely see her point.  Especially in this troubled economy when it’s possible to lose your job and it’s better to have a cushion of money to keep you going while you are looking for another one.  But, when the economy is at its best, do we really need 8 months worth? And if not, how much is enough?

I think it should be a personal choice.  You know what you can comfortably live on.  (If you don’t I would recommend making a budget so you can track how much you spend.) It definitely is a good idea to have some cash on hand in the event of a roof leak or an emergency root canal procedure.  But if an amazing investment opportunity comes your way that is too good to pass up, you may decide to forfeit part of your emergency fund.  That’s okay, as long as you have something else to rely on such as a low interest credit line.  You always want to make sure that you have something to fall back on that won’t charge high interest rates (i.e. you don’t want to have to rely on credit cards.)

If you are unsure about how much you should be saving, you might want to ask yourself this question:  If the worst possible scenario happened to me right this minute, how much money would I need to keep my family going?  No one can really tell you the perfect amount to have saved up for a rainy day.  The point is that it’s important to always have some tucked away.

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