Emergency Fund Range: Why 3–6 Months?
A listener asks why the fully funded emergency fund has a three-month range. Dave breaks it down.
QUESTION: A listener asks why the fully funded emergency fund has a three-month range. Dave breaks it down.
ANSWER: The riskier your life is, the closer you should have to the six-month range. Let’s pretend you have a postal worker and a teacher, two government employees with very steady jobs. They normally have very low layoff ratios and rarely lose their jobs. On top of that, you have two incomes in case one of them goes bad, and you’re debt-free and all those kinds of things, a three-month emergency fund might be enough.
But let’s pretend there is only one income and it’s self-employed or straight commission. Then life is wild and crazy and you want to be on the six-month side.