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bigger emergency fund

Time to have a bigger emergency fund. Do you have at least 3-6 months of expenses saved in your emergency fund? If you do, congratulations on keeping a decent money for unknown bumps in the road. If you don’t, keep saving every extra dollar until you do. Keep asking yourself this question until you can honestly sleep well at night with the amount you’ve set aside for emergencies.

Get a bigger emergency fund

Wait… I want to start at the beginning.
Link to the previous step – Step 8: Pay down high Interest Debt

Hit the brakes on paying down your debt

If you get to this step in the journey to financial independence and find yourself wanting a more robust emergency fund, temporarily stop the Snowball or Avalanche debt payback and put those extra payments toward shoring up your emergency fund.  Continue to add to your savings account until you have between 3 to 6 months of expenses saved.

I wrote a lot about why you need an emergency fund in the first place in an earlier post titled “Get a Small Emergency Fund“. If you need to please jump back there and read up on why they are so important to your financial health.

The actual amount you need in your emergency fund depends on how stable you feel your job (or income sources) are right now or in the near future. Some experts suggest you could afford a smaller emergency fund if your job is very stable versus not. I’m not so sure that is a risk I’m willing to take and prefer to have an emergency fund on the higher end of the scale. A lot of factors go into determining if your job is stable enough to have a smaller amount beyond you being good at your job or working for a good company.

Cool, how do I know how much is enough?

Factors like the industry you work in, the location of your job, your job title, the future outlook of that type of work, government regulation changes, automation, job complexity, family issues, health issues, and numerous other things come into play when trying to decide if your job is stable. Don’t take my word for it. Jessica Moorhouse, an accredited financial advisor I follow, wrote quite a bit about emergency funds and is a great resource.

The COVID-19 pandemic showed the world just how unstable some stalwart careers like cooks, servers, and other service workers can be if the right circumstances occur.  We are also living through a “Thought Worker” revolution in the United States where white-collar data driven jobs are rapidly growing and blue-collar trade jobs are shrinking.  Somewhat paradoxically, automation is slowly eliminating entire job categories that used to employ many people.

Whatever amount helps you sleep at night is right

The point is that there are far too many factors that go into whether or not your job is stable enough to consider keeping a smaller emergency fund.  Pretending we could even properly evaluate that situation a once-in-a-lifetime pandemic could rear its head and knock all of those assumptions aside.

In the end, keep at least six months of expenses in your emergency fund.  You’ll save a lot of time trying to convince yourself it is ok to have a smaller safety net and you’ll sleep better at night knowing the extra money is there.  That is my opinion, but I like the psychological benefits of knowing that money is there if I need it.

I personally keep an even bigger emergency fund

Personally, I always feel better knowing I have between 8 and 12 months expenses set aside in a high yield savings account for an emergency fund.  I also have money in a taxable investment that I could sell and convert to cash within a couple days if the need is dire enough.  Technically at my point in the journey to financial independence I might be able to get away with a slimmer emergency fund but choose not to for peace of mind.  The pandemic showed that no job is safe and layoffs can happen to anyone.

Bigger emergency fund flowchart


Add more to your emergency fund.  You should probably have at least 6 months of expenses set aside. I know it says 3-6 months but you didn’t read the explanation above so make sure you have 6 months. That’s what you get for skipping the reading assignment, lol.

Link to the next step – Pay down moderate rate debt

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