Planning a Three-Month Emergency Fund


No one wants to find themselves without a job, especially if they have been settled into a position for many months or even years. Unfortunately it can and does happen – and very often there is little or no warning before it does.

All you can do in this situation is to prepare in advance – just in case it happens to you. This means putting together an emergency fund that allows you to carry on paying the bills for a few months before having to worry about there being no money coming in.

How big should an emergency fund be?

It depends. Everyone’s fund should be different because it will depend on your outgoings. Once you have a list of those outgoings you have something to work with. It might be an idea to write some ideas on how to trim those outgoings if you ever needed to do so. For instance a cable package is a luxury we could do without if need be.

How long should your fund provide a cushion for?

The minimum length of time according to accepted thought is three months. Ideally six months would be superb, but three is the minimum. This gives you enough time to bounce back and start looking for another job.

When should you start saving for your fund?

Now – it’s as simple as that. The obvious question is what you should do if you were to lose your job before you had your three months’ worth of cash saved up. In truth there is always the possibility you could be out of work before you had the required amount put by. Even if this did happen you would still have more cash set aside than if you hadn’t started the fund in the first place. So you’ll always be in a better position than you would otherwise have been.

Where should you put the money for your emergency fund?

Put simply, this is not the time to go looking for an account that provides an excellent return if you tie up your money for a period of time. By all means look for an instant access account that provides you with the best rate of interest you can get, but it won’t be too much. This isn’t the point of the account anyway; the point is to be able to access it quickly should you ever need to do so.

It’s not just cash you’re setting aside – it is peace of mind

Losing a job is a stressful and upsetting experience, especially if you have no idea it is going to happen. In this situation you can feel one of two ways:

  • Stressed, upset and worried about how you’re going to pay the bills
  • Stressed, upset but relieved you have a three-month breathing space

Let’s face it you’re not going to recover from the shock overnight. Your financial cushion will help support you while you recover and while you look for other sources of work. It’s the best cushion you could hope to have.