The 3 to 6 Month Emergency Fund Rule Is Stupid

November 29, 2010 — 13 Comments

Do You Have Enough or Too Much in Your Piggy Bank Emergency Fund?       I can hear the claims of “Heresy!” ringing out through the personal finance world right now. How can I say the 3 to 6 month emergency fund rule is stupid?! Before you give yourself a heart attack, you need to realize that I’m not saying an emergency fund is stupid. Not by any means! In fact, I’ve written several times already about why you need an emergency fund, where to keep your emergency fund, when you should use your emergency fund, and how to build up your emergency fund. Clearly, I have nothing against emergency funds.

       No, my problem is with the silly rules of thumb that get thrown around with the idea of the emergency fund. Some say you need 3 months of your expenses, some say 6, and some say 9. I’ve even heard 2 years! The problem is that all these simple rules of thumb make the same mistake that other rules of thumb make – they ignore your circumstances.

Base Your Emergency Fund on Your Circumstances

       An emergency fund based on 3 months of your living expenses may work fine if you’re married and both of you have stable jobs with comparable incomes and you have your finances under control. But change just one of those variables (marital status, job stability, income disparity, or financial situation) and you can forget about a 3 month emergency fund doing the job.

       The size of your emergency fund needs to be tailored to your circumstances because the riskiness of your situation is determined by what’s happening in your life – not what some rule of thumb tells you. Now, I’ll grant that a 6 to 12 month emergency fund is going to be in the right zone for most people, but I wouldn’t leave this to a guess. You need to take a few minutes to think about your situation and adjust accordingly.

       For example, if you’re single then you probably only have one source of income. That puts you at a higher risk in case of a job loss than someone who is in a two-income household. The same goes for your job stability. If there’s little risk you’ll lose your job (maybe a government position?), then you’re probably a bit safer than someone in a cyclical industry (car sales, perhaps).

       If you’re socking away 20% of your income, a small emergency might not bother you too much. You can easily divert your money away from saving for a bit and go back after the emergency has been covered. But if you’re struggling to make it from one paycheck to the next, even a small $100 car repair can throw your whole world into a giant mess.

       It’s these kinds of factors that should determine how much you need in an emergency fund. I’ve talked about how much you need in an emergency fund, so I’m not going to go over it again. But keep in mind that even my article is just a general guideline. You’ll still need to think critically about your specific needs and situation.

Beware Rules of Thumb

       I’ve written several of these types of articles over the last few months. I talked about the stupidity of the save 10% for retirement rule, the 2.5 or 3 times your income for a mortgage rule, and the 80% or 90% of your income for retirement rule.

       All of these rules are guilty of oversimplification, a complete ignorance of your unique circumstances, or both. Yet some people rely on these rules of thumb for their most important financial decisions. I’m not saying you need a financial planner. But please do yourself a huge favor and take some time to think about your situation and what makes sense for you. Don’t rely on stupid rules of thumb to determine your financial future!

Any Other Rules of Thumb?

       What financial rules of thumb have you heard of that you’d like to learn more about? Are there any you question but aren’t sure why they might be wrong? Let me know in the comments below and I’ll be happy to write an article specifically tailored to answer your questions!

(photo credit: Alan Cleaver on Flickr)

This article was picked as the Editor’s Top Choice in the Best of Money Carnival!

This article was also included in the Carnival of Financial Planning.



Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

13 responses to The 3 to 6 Month Emergency Fund Rule Is Stupid

  1. Your article makes good points. As a single person I KNOW that I’m supposed to have more money socked away somewhere in case of loss of income or disaster. I don’t have the means to do that right now, so I am working on reducing the amount of money that I am living on.

  2. That’s a good idea, Sandy. The lower your short-term costs (monthly expenses) the less impact an emergency will have on your long-term finances. I still recommend you get some savings built up as soon as you can. The means will come as you widen the gap between your income and your expenses.

  3. I love this article! Probably because I also hate the general rules, but also think “do what works for you” is a cop-out answer.

    So I prefer to give people a guide so they can help decide what works for them depending on their situation.

    I did a non-scientific quiz (like those you’d find in a magazine) to help readers determine if they should build savings or pay off debt first.

    Another “general” rule of thumb is that the Debt Snowball method is the only tried and true way to pay off debt (I love it and it is my preferred method). For some people paying higher interest over higher balance will work. Assess your own behavior, mindset, discipline, do the math and decide what works for YOU!

  4. Thanks for commenting, Lakita! Good to see you around again!!!

    I personally prefer the highest interest order for paying off debt because I’m a numbers person and don’t mind waiting for a payoff. I can see why the Debt Snowball method works for a lot of people though. You’re absolutely right – you need to figure out what’s going to work for you and do it. The Debt Snowball method might take a little longer or cost more in interest, but if it’s going to get you to the finish line then do it. I’d rather achieve a goal the “wrong way” then never achieve it at all!

  5. I agree completely. If you don’t plan your financial life according to your needs then the rules can run you in the wrong direction. I personally keep 12 months of expenses because that works for our needs!

    I also dislike the 80% of retirement rule, I vote we actually calculate what it is going to cost us to retire, if we are already on a budget this is easy to do!

  6. Thanks for commenting, Andrea! We keep 12 months as well, but that’s because I’m self-employed and we plan to live only on my income at some point. If we both had fairly secure jobs, I might go with 6-9 months instead.

    I think a lot of the retirement rules of thumb are foolish. Why would you want to leave something like that to a simplified rule and just hope it works out?!

  7. This is a good article, and the way I setup my emergency fund, was to start saving alittle each week over the years. I didn’t make much money eack week, but was able to put alittle back each week. When I was a small boy, my Grandparents always told me to have some money saved back just in case something happen. I now have a nice emergency fund to fall back on if something would happen. However not everyone sees the importance of having one, and when something happens they are left in a bad situation. Good blog, I really enjoyed reading over it.

  8. Your grandparents were smart people, Ed! And so were you for following their advice.

  9. If God had a plan, in case things went sour, I guess I should have one. Before the foundations of the world Christ was slain.(Revelation 13:8) Good idea to plan ahead!! Could end up saving you!

  10. Hi, Matt! Yes, it is a good idea to plan ahead and save. Some people don’t understand that this is not the same as worrying about the future. I’ve had people ask how a Christian could have an emergency fund if we’re not supposed to worry about tomorrow and are supposed to have faith that God will provide. But not worrying is not the same as not planning. In fact, I think it’s more likely that we’ll be worrying if we don’t plan ahead than if we do. And planning does not mean you have no need for faith in God. Only a fool would look at his wealth and think he did it all himself and think he can rest securely because of his money. That’s especially true in today’s economic realities.

    Thanks for commenting!

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