How Much You Need in an Emergency Fund

Here's another item on Money magazine's list of 25 rules to grow rich by. Today's tip gives some thoughts on how much you need to have saved in an emergency fund:

Keep three months' worth of living expenses in a bank savings account or a high-yield money-market fund for emergencies. If you have kids or rely on one income, make it six months'.

I think this is good advice. Personally, we follow it -- keeping six months of living expenses in a money market account.

If you're looking for ways to build your emergency, consider cutting expenses or taking steps to make more money.

Comments

[Duane Gran]

An alternative theory says that you can safely invest the bulk of emergency savings into more aggressive investments once the amount is sufficiently high. If you have more than a year of savings it is advantageous to move it out of the money market account into stocks, for example. If this sounds risky, consider that a healthy portfolio nearly always has a few issues that could be liquidated as needed.

Naturally, this isn't blanket advice for every situation and exceptions abound.