The Standard Emergency Savings Advice Was Wrong — How Much Do You Really Need?

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The standard advice on emergency savings has always been three to six months’ worth of expenses or income. That was a tough–if not impossible–hill to climb for millions of Americans even before the virus when the economy was roaring. Then, COVID-19 proved that even that wasn’t nearly enough–we’re now a full year into the pandemic. 

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So, what now? Should financial professionals tell millions of people living check-to-check to sock away 12 months of income versus the suggested three to six months? GOBankingRates asked the experts how average people can pivot toward financial security with a realistic plan to build a cushion of cash in the post-pandemic world.

The Diversified Income Approach

Scott Nelson, CEO of MoneyNerd, wants people to completely reimagine the concept of an “emergency fund,” which implies a bunch of cash sitting in a savings account. Cash in savings accounts, by the way, spends all day every day losing money to inflation. 

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“People need to be much more proactive with their money,” Nelson said. “The principle behind an emergency fund is still important, but the reality has changed.”

The goal of amassing three months’ worth of cash to let you live off the land while you figure something out is a worn-out model. Have some cash on hand, sure, but the real key is to have money coming in from different sources so one can temporarily sustain you if another fails.

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“The principle behind an emergency fund is financial security,” Nelson said. “Financial security needs to come from multiple, different streams of income, such that any instability in the job market won’t completely derail your finances. Obviously, spend responsibly, but your energy should go into earning. Earning can mean investing, side-hustling or growing passive sources of income. The reason earning is so much more important than being frugal is because financial growth is exponential, whereas there will always be a cap to how much you can save from being cheap.”

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The Tiered-Savings Approach

Brian Davis is a co-founder of, which helps middle-class people generate passive income. He stresses that there is no one-size-fits-all standard, but agrees with Nelson that the savings account model is yesterday’s news.

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“It doesn’t have to all have to sit in cash, losing money to inflation,” Davis said. 

He recommends building a three-tiered emergency savings plan: 

  • Tier 1: Some cash in a traditional savings account
  • Tier 2: Stable investments you can liquidate quickly (this also satisfies Nelson’s multiple stream/passive income approach)
  • Tier 3: Open lines of credit

Read: How To Kick the Bad Money Habits That Cost You the Most

That last one is tricky because credit-card debt is toxic, but there are ways around death by finance charges. For example, most credit card companies let you write zero-interest introductory rate balance transfer checks to yourself, according to Credit Karma. Home equity loans are cheaper than credit cards, as are personal loans and especially margin loans, which the free brokerage app M1 Finance offers to regular, non-accredited investors–a rarity.

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The Debt-Reduction Approach

According to Ryan Maestro, portfolio strategist and founder of investing site WantFI, the pandemic proved that people who carry debt almost always fare worse in emergencies than people who don’t, even if both groups have money saved.

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“It’s better to work on becoming debt-free before an emergency and then focus on building up savings afterward,” he said. “It makes less sense to pay 18 percent interest on a balance that is only earning 0.5 percent in a savings account. Each additional $1,000 paid off a credit card balance is an extra $180 saved for the year.” 

It’s worth noting that several experts told GOBankingRates that they do believe the traditional emergency savings account is still the right approach, with several adding that the goal should be enough to last at least five months (the more the better, obviously) instead of three.

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Last updated: Sept. 30, 2021

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for, a financial publication in the heart of Wall Street's investment community in New York City.
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