Build an Emergency Fund That Fits Your Life

Expenses have a way of showing up at the worst time. A car repair, a medical bill, a job change, or something else that you didn’t see coming can quickly shift your financial picture. And when that happens, it’s normal to wonder if you have enough set aside to cover it.

An emergency fund isn’t about preparing for one specific event but having a cushion for the unpredictable parts of life. Think of it less as a target to hit perfectly and more as a financial shock absorber that helps you stay on your feet when things don’t go according to plan.

If you’re wondering how much you should have in an emergency fund, there’s a common rule of thumb—saving about six months of expenses—but what’s right for you can look different depending on your situation.

Let’s walk through how to think about that number, when it might make sense to adjust the goal up or down, and how to build a buffer that works for your life today.

How to build your emergency savings and where to keep them

If you don’t have anything in your emergency fund yet, the key is to just get started. Start by automating an amount to save each month or every paycheck (similar to how many people make retirement contributions from their pay). You could also add to this with occasional adds from spare cash or windfalls from tax refunds or bonuses.

Because you need to access emergency savings quickly, keep your money in a stable account that you can easily withdraw from. A high-yield savings account or a money market account are great options—just make sure that you keep that account separate from your day-to-day funds.

As you reach a milestone, like six months of expenses, take a moment to congratulate yourself. Saving a large amount takes discipline, and you achieved it. At this point, you may want to talk with your financial advisor about redirecting your contributions to:

• Debt paydown,
• A retirement account, or
• A home ownership fund.

Another important point is to gradually replace anything you take out of your emergency fund if you need to use it. This may also be a good time to adjust your automated contributions and savings goal if other factors like your income have changed.

When to tap into your emergency fund

Use it to get out of a tight spot, not on a splurge or nice-to-have.

While it may seem like it at the time, an emergency is not a vacation to Hawaii, a flash sale on your favorite brands, or a birthday gift for your best friend. Those should either fit into your budget already or be goals that you’re saving for separately; don’t dip into an emergency savings account to pay for them.

If you’re wondering what situations warrant a withdrawal, here are a few examples:

• Covering your rent after losing your job
• Paying the dentist bill after your seemingly harmless toothache turned into an expensive root canal
• Fixing your roof when a storm sends a tree crashing through it
• Buying a last-minute plane ticket to attend a loved one’s funeral

In other words, out-of-the-blue expenses that are hard to avoid.

How much to save in your emergency fund

When less than six months of emergency savings may be enough

Having less than six months of expenses in an emergency fund may sometimes be sufficient. This includes if you are a renter with a flexible lease, have only your mouth to feed, receive a steady paycheck, and can move in with family members if things become unaffordable.

Essentially, not having a mortgage or minor children may make an emergency fund of more than three months a nice thing to have—but not as critical. Another big factor here is whether you have a reliable “safety net” in the form of relatives or close friends who would gladly take you in or help you out if you were really in dire straits.

If all this describes your situation, don’t worry about getting up to the six-month mark right away. While it’s good to work toward that, it may make sense to direct a greater portion of your savings to other big financial goals, such as paying down debt or saving more for retirement.

When six months of emergency savings is about right

Typically, the six-month guideline applies when you have more responsibility. This includes these situations:

• You have young kids.
• You own a home.
• Your household has two steady paychecks coming in.

Still, it’s not the only situation when having six months’ worth of expenses makes sense. If you’re married with no kids but still have a mortgage to pay, the same guideline applies.

When in doubt, think six and talk with your financial advisor.

When you may want more than six months of emergency savings

You may need more than that in your emergency fund. The main factor is whether you’ve got a steady paycheck.

You’ll probably want more saved if you are married with kids, have a mortgage, or have only a single income source. Think about six to 12 months of savings if:

• Someone in your household is self-employed or has uneven income.
• You’re a single parent or sole provider.
• You are single and own a home.
• You’re worried about the economy.
• You’re concerned about your job or thinking of quitting.

In a nutshell, the more uncertain you are about your income, the more you could find your budget thrown off by a chipped tooth or fender bender. So having an emergency fund padded with more than six months of expenses may give you a bit more peace of mind that you could weather a financial storm.

The ultimate financial shock absorber

Building an emergency fund is about giving yourself a little more stability in situations you can’t predict.

You might feel comfortable with a few months of expenses set aside, or you may want more based on your responsibilities, income, or peace of mind.

Having a cushion in place doesn’t prevent life’s financial shocks. But it can make them easier to handle, helping you stay steady and focused on what comes next. Your Northwestern Mutual financial advisor can help you get started.

Your advisor can also ask deep questions and get to know what really matters to you. That way, they can be your financial copilot through life’s twists and turns.