Fri Nov 15 2024, by Tyler Gardner

How Much Money You Should Have in Your Emergency Fund

I'm Tyler, a former financial advisor and portfolio manager. I create financial content for free so you don’t have to pay for it.

1. Emergency Fund for Your 20s and 30s

If you're in your 20s or 30s and just starting out, aim for three to six months' worth of expenses in a highly liquid and accessible account, like a money market or a high-yield savings account. This approach allows you to maintain some disposable income to invest on your own.

2. Expanding Your Emergency Fund in Your 30s and 40s

As you transition into your later 30s and 40s, your responsibilities may expand. You might have a family to care for, need to save for college, have mortgage payments, or even manage a small business with a volatile cash flow. It’s advisable to increase your emergency fund to cover 12 to 18 months.

3. Retirement and Beyond

If you are close to or already retired, consider having at least two years' worth of assets in cash or cash equivalents. This strategy not only provides peace of mind but can also offer supplemental income during market downturns, preventing the need to sell other invested assets at a loss.

4. Special Considerations for High Net Worth Individuals

This point may be a bit controversial, but if you are a high net worth individual or possess a very stable income, maintaining an emergency fund might be less critical. It could be argued that an emergency fund hinders your long-term returns. In case of emergencies, a credit card can serve as a backup.

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