How Much Emergency Savings Do You Need if You're a Higher Earner?

It's important to maintain an emergency fund in case you find yourself needing to fix your car or repair your home at a moment's notice. It's also important to have money in your savings account in case you lose your job for a period of time.

In fact, you'll generally hear that your emergency fund should have enough money to cover three months' worth of essential expenses at a minimum. The logic is that if you were to lose your job, it might take three months to find a new one. So if your emergency fund can cover your bills during that time, you won't have to resort to debt.

But what if you're a higher earner? How much emergency savings do you need at that point?

The basic rules of calculating an emergency fund

The formula for figuring out your ideal emergency fund balance is largely the same whether you earn $30,000 a year or $300,000. Calculate your essential monthly expenses and multiply that total by three at a minimum.

So if you spend $4,000 a month on essential expenses, your goal should be to have at least $12,000 in savings. If you spend $8,000 a month on essentials, you'll need a minimum of $24,000 in savings. However, you may want to aim for more than three months' worth of expenses if you're a higher earner for one big reason.

Make sure you're covered

The average U.S. household spends $6,081 a month, according to recent research by The Ascent on Americans' spending. That's not necessarily $6,081 a month in essential bills. Some of that may be costs like subscriptions and streaming services that can be canceled in the event of a financial crunch.

But if you're a higher earner, it may be that your monthly spending is more like $10,000. So a $30,000 emergency fund would be necessary to cover all of your bills in full for three months. If, of that $10,000, only $7,500 represents essential bills, you could get away with an emergency fund of $22,500.

However, you might still want to aim higher. Three months' worth of living expenses is really the minimum amount of savings you should aim for. But if the reason for your higher income is that you work a high-level job or have a position that's not so easy to come by, it might take you well more than three months to find a new job if you become unemployed. So you may want to buy yourself extra protection by aiming for six to nine months' worth of essential bills.

Work can be hard to find

As an example, let's say you're a tech company employee who works at the help desk making $60,000 a year. Chances are, your job can be found at numerous companies. So if you were to get laid off, you might find a new job in relatively short order.

But what if you're a specialty IT manager earning $200,000 a year? In that case, you might struggle to find a new job if you're laid off because that position may not be so easily available with other companies. It's important to consider not just your monthly spending when calculating your emergency fund needs, but also the difficulty you're likely to encounter in finding a new job.

A big reason to have an emergency fund is to avoid taking on debt when you're without a paycheck. So think about what it'll take to achieve that goal. It may be a lot more than three months' worth of bills.