Just How Big Should Your Emergency Fund Be? Answer These 4 Questions to Find Out

Don't leave yourself with too little emergency savings.

Almost all financial experts agree that it is important to have emergency savings. But exactly how much to put into an emergency fund is a more controversial question. While some experts recommend an even larger fund, the most common advice is to save three to six months of living expenses in case of unexpected emergencies. But even that's a pretty wide range.

If you're trying to figure out how much money you should have in a savings account for a rainy day, asking yourself these four questions could help you get the answer you need.

1. How stable is your job?

Loss of income is one of the biggest events emergency funds protect against. If you lose your job, you still need to pay your bills, such as your mortgage and car payment. An emergency fund makes that possible.

If you have a really stable job, then the chances you'll need to rely on your emergency savings to cover your bills for long periods aren't very high. Likewise, if your skills are in demand and you're confident you could quickly find a new position, a smaller emergency fund may be fine.

But if your work situation is precarious and there's a chance you could see paychecks stop hitting your bank account suddenly, it's likely a good idea to err on the side of a large emergency fund that could help you keep your financial life running while you look for new work.

2. How is your health?

If you get sick, you could find your income is reduced because you either cannot work at all or need to cut back. You could also end up incurring lots of medical costs, even if you have insurance since treatments may not be covered or you could have high coinsurance costs.

An emergency fund can help you cover the bills during recovery from an illness, and it can help you pay for the healthcare services you need. If you face a higher chance of a medical issue developing soon, a larger emergency fund with six months to a year of living expenses may be better than a smaller fund.

3. How much are your essential expenses?

Since you'll want your emergency fund to cover a certain number of months' worth of expenses, you need to know what your actual costs are. To figure out your budget, take into account everything you would want and need to spend money on in case an emergency happens.

Once you add up your essential expenses, you can multiply that amount by three months, six months, 12 months, or some number in between -- depending on your answers to the other questions on this list. Say your costs total $3,000 per month and you've determined you want six months worth of expenses saved to cover them. In that case, you should have $18,000 set aside.

4. How risk averse are you?

Finally, consider your comfort level with taking on risks. If you are OK with taking a chance that you might have to sell items, take on an extra job, or even go into debt to cover emergency costs, then a smaller emergency fund may be OK. But if you want more peace of mind, then you may want to save enough to cover yourself for a year if something goes wrong.

By considering your willingness to take on financial risk, your health, your job situation, and your ongoing costs, you can make the right choice about what size emergency fund works for you.