No matter what stage of life you’re in-just starting out, living off your retirement assets or somewhere in between” building a cash reserve for emergencies will help you breathe a little easier. The old rule of thumb called for enough easy-to-access savings to cover three to six months” worth of expenses. But the rules have changed. With the economy limping along and companies still cutting jobs, you should sock away more if you really want to relieve financial stress.
How much should you put aside? “Emergency funds are no longer one-size-fits-all,” says Ann Minnium, of Concierge Financial Planning in Scotch Plains, N.J. To find your number, answer two key questions: First, how long would it take you to land a new job if you lost your current one? If it would take you six months, then you need to have cash on hand equal to at least six months” worth of expenses. But if you’re a senior executive, bigger is better because it could take 12 months or longer to find a new job after a layoff.
Second, how financially secure do you feel? If you’d sleep easier knowing you have a large buffer, build up your stash to your own comfort level. (You may also have a fat home-equity line you could draw on in a pinch.) A lot also depends on your total household income and where you are in life. If you’re married and both you and your spouse work, you need a minimum of six months’ worth of expenses. If you’re single or only one partner works and you have kids, you may need a year’s worth.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you’re near or in retirement, shoot for at least two or three years’ worth of cash in a liquid account. That way, when a bear market comes growling, you’ll have enough on hand to pay your bills without selling deflated assets.
Personalize the numbers.
To hone the numbers further, figure out how much income you would need to replace each month if you lost your job. Cynthia Freedman, owner of Freedman Financial Planning, in San Jose, Cal., recommends you start by adding up what you spend on basics such as housing, food, health insurance and cell-phone service. Also, make sure you count costs that may not come up each month, such as your property-tax bill, your car-insurance payments and essential household repairs.
You may be able to cut out some work-related costs-for example, what you pay to commute, eat lunch out or dry-clean your clothes. And you may choose to cut such items as sporting-events tickets or the weekly manicure appointment. But don’t cut out all the fun. Budget some money for the movies or a restaurant meal.
Where to put it.
Stash your cash in a liquid, interest-bearing account. Among online savings accounts, Ally Bank recently yielded 1.55% . If you have a big stash of extra cash, use a multi-tiered approach, putting three months’ worth of expenses into a savings account and the rest into a ladder of certificates of deposit that mature on a staggered basis (for a list of top-yielding CDs, see page 65). No matter where you put your emergency money, set up an automatic transfer so you don’t have to think about it each month. And try putting aside more than you think you can-you can always cut back.
One final word: A little emergency money is better than none. And if you start now, your fund will grow, probably faster than you think. To see how the interest can add up over time, check out the compounding calculator at kiplinger.com/links/savingsworth.
-
Quiz: Do You Really Know How Social Security Benefits Are Taxed?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
Are You Ready for 65? The Medicare Initial Enrollment Period QuizQuiz Turning 65 soon? Test your basic knowledge of Medicare's Initial Enrollment Period (IEP) rules in our quick quiz.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
What Does Medicare Not Cover? Eight Things You Should KnowMedicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
15 Reasons You'll Regret an RV in RetirementMaking Your Money Last Here's why you might regret an RV in retirement. RV-savvy retirees talk about the downsides of spending retirement in a motorhome, travel trailer, fifth wheel, or other recreational vehicle.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Estate Planning Checklist: 13 Smart Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
