How Much Money Should Your Emergency Fund Have to Weather a Recession?

Emergency fund savings written on the jar with money.
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Building an emergency fund is important in any economy, but it takes on added importance during a recession because of the higher risk of being laid off. The rising likelihood of a recession has many Americans wondering if they have enough money saved up to cover their bills in case the worst happens.

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More than half of Americans are now concerned about the level of their emergency savings — up from 44% two years ago, CNBC reported.

The amount of money you should have in your emergency fund during a recession varies according to different factors. A recent Motley Fool column that appeared on the Nasdaq website noted that you should think more about specific expenses than a specific dollar amount.

A good first step is to calculate your essential monthly expenses and then multiply that number by at least three, though it would be better to multiply it by six to 12 in a down economy.

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Suppose your essential bills equal $5,000 a month. You’d need $30,000 in your emergency fund to cover six months’ worth of essential expenses and $60,000 to cover a full year. Also, make sure you take into account the current rate of inflation, which is the highest in more than four decades. The gas and grocery bills you paid a year ago no longer apply in today’s economy, so keep your figures as current as possible.

You also need to consider how many earners are in your household. The typical recommendation for dual-income families is to build an emergency fund worth three to six months of living expenses, according to Christopher Lyman, a certified financial planner with Allied Financial Advisors in Newtown, Pennsylvania. Even if one earner loses their job, there are other income streams to help the family keep up with expenses.

But if you are in a household with only one earner, you should probably increase your savings to six to nine months’ worth of expenses, Lyman told CNBC. Other financial advisors recommend building even more savings to give yourself a bigger cushion in case one earner loses their job, leaving the household with no income.

Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, told CNBC that households should build 12 to 24 months’ worth of emergency savings. Similarly, personal finance expert and best-selling author Suze Orman recently told CNBC she recommends an emergency fund of eight to 12 months’ worth of expenses.

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The bar is even higher for small business owners, independent contractors and entrepreneurs – especially in a recession when businesses can go south in a hurry. For people in this category, Lyman recommends setting aside at least one year’s worth of expenses.

“Taking this advice saved quite a few of our business owner clients from shutting down due to the pandemic,” he said.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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