Here’s How To Build an 18-Month Emergency Fund

By Jordan Rosenfeld

April 27, 2022

Syda Productions / Shutterstock.com

An emergency fund is pretty much what it sounds like — a financial cushion set aside in the event that something unexpected happens to you, from losing a job to having to pay for a sudden, big expense. While the common advice recommends having around a six-month fund, if the pandemic has taught us anything, it’s that there may be times it’s necessary to have a much more significant amount of money set aside, such as 18 months’ worth.

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Though it’s unlikely that most people will need an 18-month emergency fund, Danielle Miura, CPF, founder and owner of Spark Financials says, “If a person decides to quit their job and become self-employed, an 18-month fund might be what they need to develop their business within the first year and have enough money available in case things go unexpectedly.” Here is some guidance for a person such as that.

Why Saving for 18 Months is Wise

Saving for a longer stretch than the conventional six-month period is smart because we are in a huge period of transition, according to Brian Dechesare, founder of Breaking Into Wall Street, a financial career platform.

“[The transition] applies to finance, economics, but also on a wider cultural and societal level, we’re in the middle of a huge shift and nobody can know how exactly things will unfold…the greater the uncertainty and flux in the world, the longer our savings and reserves should be.”

He points to such factors as 40-year inflation highs, war in Europe, huge increases in the cost of oil, gas and electricity, as well as the threat of food shortages due to global supply chain issues. “All of that adds up to the very real threat of an economic recession. Building long term savings in such a scenario is always going to be a smart move.”

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Create a Budget

But how do you get to such a sizable chunk of savings? According to Shelly-Ann Eweka, senior director of financial planning strategy at TIAA, regardless of how big your emergency fund goal is, “the most important thing is to start by creating a budget that shows how much you can afford to save. Once you have your budget, you should automatically set aside money from each paycheck for the emergency fund. In other words, pay yourself first.”

She recommends using financial apps or software to better understand where you’re spending your money.

Calculate Your Monthly Expenses

Before you know how much to save, you need to know how much you spend, and then multiply monthly expenses by 18. If your monthly expenses are $4,000, for example, that’s a whopping $72,000 you need to save, says Scott Lieberman, owner and founder of Touchdown Money.

It’s helpful if you have an end goal, he says. “Determine when you need your emergency fund. If you don’t plan on opening a business until three more years, you can focus on saving $2,000 each month to reach your goal. The key here is knowing when you’ll need that money and how much you need to save each month.”

Reduce Expenses

Once you know how much you’re spending and how much is left to save, you have an opportunity to reduce expenses, Eweka says. “You’ll be surprised about the things you purchase. Instead of buying lunch each day, can you make lunch at home and bring it to work? Are you paying for a gym membership you haven’t used in Three months? Maybe start doing workouts at home or jog with friends.”

Create a Dedicated Account

Saving for an emergency fund may also be more successful if you create a separate bank account for it, and be aggressive in your savings. Miura says, “I suggest…you transfer a percentage of your income to the account. If you want to be aggressive about saving as fast as possible, make saving a priority.”

Save All Extra Money

Should you be lucky enough to earn tax refunds, cash gifts such as birthday gifts, or work bonuses, Lieberman recommends you put that money straight into savings.

Automate Savings

The easiest way to save money before it gets spent is to automate it, says Carl Jensen, financial consultant and founder of Money Mow. “Make a savings strategy that you don’t have to worry about. Determine how much cash you’ll need…and have the bank deposit a specific dollar amount into a different account every week. This can be done until you attain your objective or indefinitely to build a bigger buffer for future possibilities.”

Invest Savings

The least effective way to grow money is to stick it in low-yield savings account, Jensen says, so consider other options.

“After you’ve attained your final goal, you should cease contributing to that account. Instead, start putting money into an account that will start producing money on its own — ideally, one of your retirement accounts, where it will make the most fruit over time.”

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Take on Additional Work

Sometimes the only way to make enough money to save extra is to take on extra work. Adam Garcia, founder of The Stock Dork advocates for taking a part-time job rather than starting a side hustle. “For one thing, a part-time job’s pay is frequently more consistent. Second, it will take less time for you to begin making enough money to make a significant difference in your savings.”

Consider Inflation

The one downside of saving that much is that you essentially lose money on your money by keeping it in savings due to inflation, says Eweka. “Just look at gas prices today compared to where they were a year ago. If you set aside, say, $100 in 2021, is that $100 going to get you as much now as it did last year?”

If you have time to save, consider investing that money instead.

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About the Author

Jordan Rosenfeld

Jordan Rosenfeld is a freelance writer and author of nine books. She holds a B.A. from Sonoma State University and an MFA from Bennington College. Her articles and essays about finances and other topics has appeared in a wide range of publications and clients, including The Atlantic, The Billfold, Good Magazine, GoBanking Rates, Daily Worth, Quartz, Medical Economics, The New York Times, Ozy, Paypal, The Washington Post and for numerous business clients. As someone who had to learn many of her lessons about money the hard way, she enjoys writing about personal finance to empower and educate people on how to make the most of what they have and live a better quality of life.