How much do you need to have in reserve for unexpected events? The popular financial gurus have their opinions which can range anywhere from three to eight months of living expenses in savings. Being prepared is the name of the game. Whether you’re laid off, become ill, have major unexpected car repairs or significant child related expenses, if you don’t have a reserve fund you could find yourself faced with a financially ruinous situation. Perhaps you’re thinking that could never happen to me but without an emergency savings fund you’re living on the edge. Anything can happen at any time. Better to be prepared than not to be.
As far as how many months of living expenses you need to have in savings, I believe three months is not enough. I tend to lean towards a six-month reserve. In a recent issue of Costco Connection Suze Orman made the case for having a full year of living expenses in reserve. She referenced the pandemic last year and the financial calamities it caused for so many individuals, families, and businesses. I think she makes a good case and perhaps has established a new ideal. While getting your emergency savings fund up to a balance equal to 12 months of living expenses may take some time, it will most certainly provide you greater protection and help you sleep better at night when the unexpected arises. Hopefully, you know how much you spend each month on living expenses.