Is a 3-Month Emergency Fund Really Enough?

A recent SecureSave survey found that 63% of Americans don't have enough money in the bank to cover an unplanned $500 expense. But the reality is that the typical worker should have way more than $500 in savings.

You'll often hear that it's important to maintain an emergency fund with enough cash to cover at least three months of essential expenses. The logic there is that if you were to lose your job, a three-month emergency fund would allow you to pay your bills for a period of time without resorting to debt.

But is a three-month emergency fund really enough? Here's why it may not be.

A recession could keep you out of work longer than expected

It's one thing to lose your job because your employer had financial problems or because your industry has been a bit sluggish. But it's another thing to lose your job during a full-blown recession.

If that were to happen, it's conceivable you could be out of work for far longer than just three months. This especially holds true if you have a unique job or are a higher-level employee. Oddly enough, sometimes, having a higher-level job that requires more skills puts you at a disadvantage when looking for work because there are fewer jobs of that nature to fill.

It's for this reason that you may want to aim for more like a six-month emergency fund. That gives you more leeway to do some job-hunting without having to resort to debt to pay your bills.

You could run into issues if you lose your job at the same time home or car repairs arise

Let's say you lose your job and aren't entitled to severance or unemployment. Perhaps you'll manage to find a replacement job in three months. But what if you happen to need a $3,000 car repair or $5,000 home repair at the exact same time you're out of work? Suddenly, you're in a jam.

That's why, again, a six-month emergency fund might be a better target to aim for. Alternatively, you could aim to sock away enough cash to pay for three months of bills but also add a few thousand dollars on top of that for home and vehicle repairs.

How to build up a larger emergency fund

Seeing as how the majority of Americans clearly don't even have a three-month emergency fund, building a six-month fund might seem next to impossible. But one thing to remember is that you don't need to come up with six months' worth of expenses in savings today.

It might take you a couple of years to complete your emergency fund if you're aiming for a higher number, and that's okay. The key is to build up gradually as you can.

That said, there are steps you can take to move the process along. First, consider taking on a temporary side hustle. Since that money won't be earmarked for existing bills, you can sock it away in the bank for emergencies.

Next, if you're used to living on a certain income and you get a raise at work, set that extra sum to get transferred to your savings account automatically. If it's not money you need to pay your bills, you should be able to part with it pretty easily. And if you set up that automatic transfer right away, it's money you won't even miss.

Having a three-month emergency fund puts you in a solid position to deal with unplanned expenses or a period of joblessness. But if you're able to save for emergencies beyond that, you'll buy yourself that much more protection and peace of mind.