Introduction
According to StatsCan, in 2022, 29% of women reported being unable to cover an unexpected expense of $500 compared to 24% of men. In the United States, U.S. News reports that in 2025, 49% of women do not have an emergency fund compared to 36% of men
These numbers highlight the importance of an emergency fund. It is a cornerstone of financial security that everyone can build with the right strategies. To make this process easier, download our free Emergency Fund Calculator. It is designed to help you calculate exactly how much you need to save based on your unique circumstances.
An emergency fund is money set aside in cash, or a cash-like investment, that you only use if you need to. An emergency fund can protect you against unexpected financial shocks, such as job loss, medical emergencies or major repairs. Generally, it is recommended that you save 3-6 months of income. But how do you decide how much to save? 3 months, 6 months or even more?
1. The Purpose of an Emergency Fund
An emergency fund is your safety net for unplanned expenses. If your car breaks down, you can use some of your emergency fund instead of putting the car repair on your credit card. Or if you lose your income your emergency fund can cover your expenses while you get back on your feet. This can give you some peace of mind when you are already having a bad day.
With an emergency fund, you can avoid high-interest debt and protect your investments, keeping your financial goals on track. Both can significantly delay your financial goals. This provides you with financial stability, by creating a buffer between an emergency and financial disaster.
If you’re unsure where to start or how to calculate your emergency fund, try our Emergency Fund Calculator. It simplifies the process, so you can focus on building your financial safety net.
2. Factors to Consider When Choosing the Right Amount
a. Job Stability
Since one of the purposes of an emergency fund is to cover an unexpected loss of income your job stability is crucial to determining how many months of expenses you should have saved.
If you have a high stability job you should lean closer to 3 months. Some examples are a union job or a job with tenure. But if you have a lower stability job you’ll want to lean closer to 6 months or even more, such as gig work, commission-based jobs or a job with a variable income. Learn more about budgeting on a variable income here.
Determine how likely you are to be laid off, fired from your job or see an unusual reduction in income.
b. Sick leave/ Disability
In addition to job stability, consider your employer’s policy around sick leave, and short-term and long-term disability. You never know when a medical emergency can happen so it’s important to include what income your work will provide if you are suddenly unable to work.
If your work has a good policy you can lean closer to the 3 months. But if they don’t have one you’ll want to have at least 6 months. You can also see if Employment Insurance has sickness benefits in your area.
For example, if you face a medical emergency, such as a broken ankle requiring surgery. An emergency fund ensures you can cover expenses during recovery without financial strain.
c. Industry and Economic Trends
Some industries are prone to layoffs, due to annual reductions in work (fishing or construction) or economic downturns (forestry). Or you could be like my SO and work in the tech industry who often have layoffs for no real reason. In these situations, you want to lean closer to having a 6-month fund.
Stay informed by following the news, as it can help you identify when it might be wise to increase your emergency fund. Being aware of potential economic changes allows you to cut back on unnecessary expenses and save extra money in advance. For example, news agencies reported on COVID-19 weeks before government shutdowns. If you worked in the hospitality industry, recognizing the potential impact—similar to what happened during the SARS outbreak in the early 2000s—could have prompted you to start saving earlier.
Because I live in Canada, I would want to have been increasing my emergency fund since Trump was threatening (and just did, they currently go into effect in 30 days) to put 25% tariffs against Canada. Even though I think I am unlikely to be laid off, the industry the company I work for does a lot of exports to the US so it could happen. Plus, with the economy not doing well due to the tariffs, it would be harder to get a new job.
d. Household Income and Expenses
Every household is unique, and its structure should play a key role in determining the size of your emergency fund. Single-income households generally require a larger emergency fund than dual-income households because it’s less likely for both earners in a dual-income household to lose their jobs simultaneously. However, the risk increases if both partners work at the same company—especially in the same department. Consider how likely it is for one or both of you to secure a similar-paying job or whether a pay cut might be necessary.
Growing up in a single-income household, my family needed a larger emergency fund. Although finding another job might not have taken long with 2 people looking, my mom wouldn’t have been able to replace my dad’s income level quickly. With only one income to rely on, losing it entirely was a daunting prospect. A well-funded emergency reserve offered peace of mind, providing the necessary time to recover financially without undue stress.
Additionally, think about what would happen if you or your partner became ill. If the sole or primary earner in your household was unable to work, how would it impact your financial stability? Households where one person earns significantly more than the other should also prepare for the potential loss of most of their income in such scenarios. Planning for these possibilities ensures that your emergency fund can effectively support you during challenging times.
e. Lifestyle and Fixed Expenses
Your lifestyle and fixed expenses play a crucial role in determining the size of your emergency fund. How flexible is your lifestyle? Could you easily cut back on discretionary spending, or would it be a struggle? Similarly, assess how much of your monthly expenses are fixed. If you have low fixed expenses and no debt, a smaller emergency fund might suffice since you’ll have more flexibility to adjust your budget.
However, if you have higher fixed expenses—such as childcare, student loans, or significant debt obligations—you’ll need a larger emergency fund to ensure you can cover these essentials without added stress. Fixed expenses are non-negotiable, so it’s vital to account for them when building your financial safety net.
If you’re looking for practical ways to free up cash and reduce your lifestyle costs, check out my post on creative ways to save money. It offers actionable tips to cut back on expenses without feeling deprived, which can make building your emergency fund easier and faster.
By evaluating your expenses and finding areas where you can make adjustments, you can better tailor your emergency fund to meet your needs. Remember, the more prepared you are, the more peace of mind you’ll have when facing unexpected challenges.
f. Dependents and Responsibilities
The more dependents you have, the larger your emergency fund should be. With higher expenses on average and more opportunities for emergencies to disrupt your work or finances, your fund needs to account for these added responsibilities. When thinking about dependents, don’t forget to include pets, parents, or adult children. While they may not live with you (except for pets, of course!), if something happens to them, you may find yourself missing work or providing financial support.
For example, my parents need a larger emergency fund because they help both my grandmother and my sister when needed. My grandmother, while financially stable with investments, might face delays in accessing her funds, and withdrawing too much at once could jeopardize her long-term financial security. My sister is young, owns a home, and supports herself in a single-income household. If an unexpected expense arises, she has no one else to turn to. Situations like these highlight why accounting for extended family and other dependents is essential when building your emergency fund.
g. Personal Comfort Level
Some people feel more secure with a larger safety net, while others are comfortable with just three months’ worth of expenses. For some, peace of mind might mean having a year’s worth saved. My significant other, for example, has anxiety and feels most comfortable knowing we have at least six months’ worth of expenses saved. Additionally, we ensure all of our fixed expenses can be covered by either one of our incomes.
Having a side hustle can also affect your comfort level, it reduces the risk of losing your entire income all at once. However, it’s essential to remember that even diversified income streams can be affected by large-scale events. The COVID-19 pandemic, for instance, disrupted nearly every industry worldwide, reinforcing the importance of maintaining a solid emergency fund no matter your financial setup.
3. How to Calculate Your Emergency Fund
a. Determine Monthly Expenses
- List your essentials: rent/mortgage, utilities, food, transportation, insurance, debt payments.
- Exclude discretionary spending like entertainment or luxury items.
- Consider if you can reduce any of your essentials from your normal spend (ex: reduce your phone bill)
- Not sure how to track all your monthly essentials? The free Emergency Fund Calculator includes a simple template to help you break down and total your expenses quickly and accurately.
b. Multiply by Desired Months
- Decide between 3, 6, or more months based on the factors above.
- If your monthly essential expenses are $3,000 you would want $9,000 for 3 months, $18,000 for 6 months or $36,000 for a year.
- The calculator will also help you visualize how your savings goal changes depending on whether you choose a 3-, 6-, or 12-month timeline.
4. When to Choose More Than 6 Months
If you know there are times when you will be out of work for a long time, you want to have enough to cover longer than you expect to be out of work to cover other emergencies. Consider how reliable your income and health are when choosing your timeline.
- Scenarios where extra savings are prudent:
- Freelancers, business owners, or seasonal workers.
- Early retirement or major life transitions (e.g., starting a business).
- Health issues or a family history of emergencies.
5. Strategies to Build Your Emergency Fund
a. Start Small, Scale Up
Getting started can feel overwhelming, but our free Emergency Fund Calculator is here to help. Start with the basics, like a $1,000 starter fund, and scale up as you go. Automate your savings to grow your fund steadily until it is fully funded. Once you use your fund, set the savings up again until it is at a level you are comfortable with. This will help ensure your fund is there when you need it. You’ll want to fund your emergency fund quickly, within a year. But some of these numbers can be large amounts which can make that hard.
Going back to our example, you need to put $9,000 into your emergency fund, you could save $750 a month for 12 months. For a lot of people, this isn’t possible. Start small by aiming for $1,000 in the first 4-6 months and scaling up.
If you have debt, stop at the $1,000 amount. Pay off the debt first, using either the snowball or avalanche method. Paying off debt first will reduce financial strain in emergencies, since you will not have to worry about those debt payments.
Once your debt is paid off, over a year you can save $667 a month to fill your fund. This will be much easier without debt. If you can’t afford to save for an emergency in one year after paying off your debt, you likely need to look for ways to boost your income.
b. Use High-Yield Savings Accounts
Since you won’t know when you will need the money, your emergency fund should be kept in a high-yield savings account. Risking your emergency fund in an investment is a bad idea, both because you don’t want to lose the money but also so you have access to it when you need it. A high-yield savings account will allow you to earn interest without risking your money. Earning interest will reduce the effects of inflation on your emergency fund.
When choosing a high-yield savings account, prioritize these features: no fees, a competitive interest rate, and easy access when needed. If you struggle with dipping into savings, consider opening an account at a different bank than your regular one and freezing the debit card. This creates a helpful barrier. Making it harder to access the funds but still ensuring you can get them in a genuine emergency.
c. Prioritize Your Emergency Fund
An emergency fund should be your priority once you have enough money to cover your bills. Cut back temporarily until you have at least $1,000 in the fund and then evaluate how much you can allocate every pay cheque to the fund until it is fully funded. If you are paying off large amounts of debt this is a good place to stop. By paying off debt you are increasing the amount you can borrow in the future. Plus you’ll be improving your credit score.
6. Maintaining and Adjusting Your Fund
The amount you have in your emergency fund is personal, so you need to reassess it based on life changes. Major life changes like a new job, marriage, or parenthood should prompt you to reassess your emergency fund to ensure it aligns with your evolving needs. Make sure your emergency fund reflects your current expenses and responsibilities.
Once you’ve used your fund, take some time to consider how well it worked for you before you start your plan to replenish it. Was it enough money? Did you wish that there was more? Did you have more than you needed? Adjust how much money you want in your fund based on these questions and make a plan to replenish it.
Conclusion: Emergency Funds—Your Financial Safety Net
An emergency fund is a crucial financial tool that provides security and reduces stress during life’s unexpected challenges. By tailoring the size of your fund to your unique situation—considering factors like job stability, dependents, and fixed expenses—you can build a safety net that meets your needs.
The key is to start today—every small step moves you closer to financial freedom and peace of mind. Every dollar saved brings you closer to financial peace of mind. Begin by setting a realistic goal, automate your savings, and adjust as your circumstances change. Your future self will thank you for the stability and confidence an emergency fund provides.
Building an emergency fund is one of the best ways to achieve financial peace of mind, and with our free Emergency Fund Calculator, you can take the first step today. Download it now and start creating a safety net tailored to your needs.