Every family should build up their emergency fund to an amount equal to 3 – 9 months of living expenses. Why? With this reserve, you are building your safety net against major life events so that you can avoid going into debt.

When you have 3 – 9 months of income in savings, there aren’t too many emergencies that you can’t cover. Lose your job? You’ll be able to pay your mortgage while you search for a new job. Car accident? Your fund will cover the deductible.

You also mitigate your risk, rather than letting a bad situation turn into a catastrophe. A medical problem won’t turn into bankruptcy, and a job loss won’t turn into a foreclosure. By building up a cash reserve, you manage the risk that comes along with those major life events and stop them from turning into a life-changing crisis.

How Much Should I Save?

The decision of how much money to save in your emergency fund will vary depending upon factors like your living situation, number of dependents, job stability and others.

• If you’re single and have a relatively low level of needed income every month, you may be able to get by with only three months of expenses.
• If you’re the only breadwinner, then you may want to keep a buffer of at least six moths of expenses.
• If you’re expecting a major life event in the near future (new baby, potential layoffs, etc.) you may want to start stockpiling cash and save even more than nine months if possible. In many cases, it can take 8-9 months to find a new job.
• You’ll want your emergency fund accessible and liquid.

Building a safety net is always a smart move, but in today’s economy, it’s an absolute must.