I'm Someone Who Needs a 12-Month Emergency Fund. Here's How to Know if You Are, Too

A recent survey by SecureSave found that 63% of Americans do not have enough savings to pay for an unplanned $500 expense. And that's upsetting to read because the general advice you'll hear is to save enough money to cover three months' worth of essential living costs at a minimum. Someone who can't so much as come up with $500 on the spot can't come close to paying for three months of bills.

The logic behind the three-month emergency fund is that if you were to lose your job, it might take that long to find a new one. And you need a way to pay your bills during a period like that to avoid having to resort to expensive credit card debt.

A three-month emergency fund might also make it possible to cover a larger home repair. For example, if you spend $3,500 a month on essential bills, you might have a $10,500 emergency fund if you stick to that three-month minimum. If you then need to come up with $5,000 for a home repair, you're all set. 

But while saving up three months' worth of bills may be adequate for most people, I insist on having enough money in my savings account to pay for a year's worth of bills. Here's why.

When you have to be your own safety net

Salaried workers are often eligible for unemployment benefits when they find themselves out of work through no fault of their own. And many workers are employed by companies with a policy of offering severance pay in situations where people aren't let go for cause. 

As a freelance writer, however, I'm not privy to any of these benefits. If I were to lose all of my work without notice, I wouldn't be entitled to unemployment benefits through my state, and I wouldn't be eligible for severance pay. So that's one reason I insist on having a larger emergency fund.

Another reason is that I'm not just financially responsible for myself. I have three young kids who depend on me financially. And while I may be willing to cut back on certain essentials myself during a period of income loss, I'd hate to have to tell my kids they can't continue to play sports or see friends due to our financial situation deteriorating. So I make a point to keep extra cash in savings to avoid that sort of scenario.

Do you need a larger emergency fund?

The amount of emergency savings you need should hinge on your personal situation. At a minimum, you should try for three months' worth of living expenses. Whether you go beyond that point should depend on factors such as:

• Whether you have dependents
• Whether you own a car or home (If so, you may be more likely to encounter unplanned expenses than someone who rents and takes public transportation)
• Whether you're a salaried employee versus self-employed
• Whether a three-month supply of cash is enough to help you sleep at night

The latter is also a big reason why I choose to keep 12 months' worth of bills in the bank. Frankly, I need that peace of mind. 

In reality, I could probably get away with having less savings in the bank and still be in a pretty good position to withstand a hit to my income. But having the savings balance I do helps me feel better about my family's finances. So for that reason, it's worth having that extra protection.

I know that if I were to move some of my savings into investments, I'd potentially earn a higher return on a portion of my money. And that's tempting. But I'm willing to forgo that higher return in exchange for my mental well-being.