Why I Have a Year’s Worth of Savings in My Emergency Fund

As someone who writes about personal finance, I tend to give people one big piece of advice: save adequately for emergencies. In fact, I believe that, no matter your age or income, your first financial goal should be to sock away enough in a savings account to cover three to six months of living expenses. That way, you have cash to tap in case you lose your job or encounter a string of bills your regular paycheck can’t cover. Without that money on hand, you could land in serious debt.

My emergency fund, however, is a bit larger than most. I have a year’s worth of living costs in savings, earning minimal interest but giving me the peace of mind to go about my days without financial stress. Here’s why I’ve been so aggressive in funding my emergency savings.

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1. My income is variable

Salaried employees can look forward to the same paycheck every week. I can’t. Since I’m self-employed, the amount I earn each week hinges on how much content I produce. It also hinges on whether things go wrong in my personal life that prevent me from doing my job.

I have three fairly young children. If, for example, one of them gets sick and I need to care for them, that could mean I don’t work for several days, and earn no money. Similarly, obligations sometimes get in the way of my job. Salaried workers have paid time off they can use to avoid a hit to their paychecks when they need to be out of the office. I don’t. Because I’m starting out with an income that’s not guaranteed, I like the security of extra money in the bank.

2. I’m generally not entitled to unemployment benefits

Losing a job can be a huge financial blow, but for many workers, there are unemployment benefits to fall back on. Those benefits generally don’t replace your entire paycheck, but they do make up for a portion of it.

Since I’m self-employed, I’m usually not entitled to unemployment benefits. If I lost my job, I’d have zero income. Right now, self-employed workers are able to collect unemployment thanks to programs put into place during the pandemic. But hopefully, the pandemic will be behind us soon, at which point those programs will probably expire. Since I know I generally can’t collect unemployment, I need extra money in my savings account to compensate.

3. I don’t have anyone to fall back on for financial support

I know a lot of adults whose parents can provide some amount of financial assistance, whether it’s helping cover summer camp for their kids, or writing out a check when home repairs pop up. I don’t have that. My family doesn’t have a lot of extra money, so if my expenses rise or I encounter an unplanned bill, I can’t ask for help. So I need more money in my emergency fund for these situations.

Most of us probably don’t need a year’s worth of living costs in savings. And technically, I may not need that much, either. But having that cash helps me sleep better, so while I may be giving up investing some of that money or doing other things with it, keeping it in savings is the right call for me.

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