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Financial advisors often say you should save six months of living expenses in your emergency fund. But are these professionals being too conservative? Six months is a lot of money, so it can take a lot of work to achieve. 

Is it worth it?

Let’s crunch the numbers and consider some timelines to see if this savings goal is necessary.

Handling an Unexpected Expense

Your emergency fund pulls its weight most often as a safety net. Should you have to take your car in for repairs ahead of its usual tune-up, you can dip into these savings to cover the bill.

Usually, when financial advisors talk about being prepared in an emergency, they mention having $400 to handle an unexpected expense. But this standard benchmark might not be enough. New research shows the average unexpected expense costs $1,700. More still, most people run into at least one unexpected expense every three months. 

These new numbers change the way we think about emergency funds. 

In a year, the unexpected could total nearly $7,000. A six-month emergency fund should cover this theoretical price tag, but anything significantly less might fail to keep up. If you face larger or more frequent emergency expenses, you might have to supplement a smaller emergency fund with an online personal loan or line of credit. 

So, is a six-month absolutely necessary when handling unexpected expenses? No — it depends on your risk tolerance. 

If you are comfortable with personal loans as a safety net, you may consider online borrowing options for you and your emergency. But it’s normal to feel hesitant about taking out loans online. If you would rather finance the unexpected on your own, you should strive towards a six-month emergency fund. 

Finding a Job

Now let’s talk about the other important job emergency savings do. They fill in for your salary if you lose your job — whether you get laid off, get fired, or have to take a leave of absence to focus on your health.

It’s hard to put a number on a leave of absence, as it depends on your illness, injury, or dependant if you act as a caregiver. The job search, by comparison, is a lot easier to track. While your skills, experience, and industry are factors, the average person takes between five and six months to find a job.

If you are laid off or wrongly fully terminated, you may qualify for unemployment benefits. The Family and Medical Leave Act (FMLA) protects your job while you take time off to look after your health or the health of a loved one, but paid family leave is not universal.

In case you don’t qualify for these benefits, a six-month emergency fund is recommended. You can rely on these savings to pay the bills, even if you don’t have a paycheck or insurance to help. It gives you enough time to pursue a job in your field, rather than resorting to whatever pays the bills. 

The Takeaway:

Finding a new job can take six months of hard work. Unexpected expenses can cost more than you think, arriving more often than you realize.

While safety nets such as personal loans and unemployment insurance exist, your emergency fund is a critical support when you face either of these issues. Having a full six month’s worth of living expenses stocked away isn’t absolutely necessary, but it’s a good goal to work towards if you value security.