How much money do you need in an emergency fund at each stage of your career

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If you’re feeling unsettled amid volatile stock markets, high inflation and rising interest rates, you might be wondering how much money you really need to have on hand.

But the right amount to have in your emergency fund depends on your family’s situation and needs, say financial experts.

Still, with two-thirds of Americans worried about a recession, it’s easy to see why investors are worried about saving.

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Indeed, more than half of Americans are now concerned about their level of emergency savings, up from 44% in 2020, according to a June survey by Bankrate.

Many fear they won’t measure up: Nearly a third of Americans have less than three months worth of savings and nearly a quarter don’t have an emergency fund, Bankrate found.

Although lower yields have made cash less attractive in recent years, this could change as interest rates rise. And experts say there’s value in the peace of mind that savings provide.

Here’s how much cash savings you need at different points in your career, according to financial advisors.

Double income: Plan at least 3 months of expenses

The typical recommendation for dual-income families is to save three to six months of living expenses, said Christopher Lyman, certified financial planner at Allied Financial Advisors in Newtown, Pennsylvania. The reasoning: even if an employee loses his job, there are other sources of income to help the family meet the expenses.

Single workers: Save 6 months or more

However, single-income households can benefit from increased savings at six to nine months of spending, Lyman said.

For single-earners and two-earner households, some advisers say it’s better to have higher cash reserves to provide “more options” in the event of layoff. Recessions usually go hand in hand with rising unemployment, and finding a new job may not happen quickly.

Catherine Valega, CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, suggests keeping 12 to 24 months of cash expenses.

Suze Orman, personal finance expert and best-selling author, also recommended additional savings and recently told CNBC she was pushing eight to 12 months of spending. “If you lose your job, if you want to quit your job, it gives you the freedom to keep paying your bills while you think about what you want to do with your life,” she said.

Entrepreneurs: Reserve 1 year of business expenses

With more economic uncertainty, Lyman recommends entrepreneurs and small business owners try to set aside a year of business expenses.

“Following this advice has saved a number of our business owner clients from shutting down due to the pandemic,” he said.

Some people are uncomfortable with having so much money “on the sidelines” and earning nothing, especially right now when stocks seem to be offering a great buying opportunity.

Christopher Lyman

certified financial planner with Allied Financial Advisors LLC

Retirees: Keep 1-3 years of cash expenses

With soaring inflation and relatively low interest rates for savings accounts, large sums of cash can be a tough sell for some retirees. However, experts suggest keeping one to three years of expenses readily available.

“Having an adequate cash reserve is a critical part of making your money last in retirement,” said Brett Koeppel, CFP and founder of Eudaimonia Wealth in Buffalo, New York.

Having enough cash on hand can limit the need to sell assets when the market is down, a misstep that could deplete your retirement balances faster.

Of course, the exact amount of money to keep in retirement depends on monthly expenses and other sources of income.

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For example, if your monthly expenses are $5,000 per month, you receive $3,000 from a pension and $1,000 from Social Security, you may need less cash, around $12,000. $ to $36,000.

“This allows you to hold onto your longer-term investments without risking selling when the stock market is down,” Koeppel said.

Savings is a “very emotional subject”

There is some flexibility in the “right” amount. Money is a “very emotional topic,” Lyman admits, noting that some clients stray from his savings recommendations.

“Some people are uncomfortable with having so much money ‘on the sidelines’ and not making anything, especially right now when stocks seem to be offering a great buying opportunity,” he said. .

Others were “cautious” before and now feel “very worried about the market,” motivating them to save a lot more, Lyman said.

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