There are many opinions on the ideal size of an emergency fund but most experts recommend that you have enough money in your fund to cover 3 to 6 months of your expenses. Instead of adding up all your monthly expenses, it’s easier to figure out your monthly take-home pay and then multiply it by 3 or 6 months. For example, if your take-home pay is $1,000, your emergency fund should be $3,000 to $6,000.
Before you set a higher target for your emergency fund, remember two things: (1) While you are building up your emergency fund, you will have to postpone other, very important saving activities; and (2) Your emergency fund won’t be earning much interest because you need to keep it in a savings account where you can easily get your cash in an emergency; you don’t want to tie up too much of your money in such a low-interest account.
To explore the situations where a larger emergency fund would be a good idea, check out this post: