From the mailbag: How much emergency savings should I have?

A correspondent asked:

I’m nervous about my job situation; how much emergency savings do you recommend someone has?

Careful in Carolina

Hi Careful-

There’s no precise answer that’s correct for everyone’s situation. However, a good rule of thumb is 3 to 6 months of your living expenses should be saved for emergencies.

To decide on the right amount for your circumstances, consider these questions:

• How re-employable are you at a similar salary? Do you have skills that are in demand that would allow you to quickly find a new job or would you face a prolonged job search?
• Do you have many fixed obligations  — e.g., back-taxes, student loans, child support — for which you must remain current?
• Do you have variable living expenses from which you can quickly scale back, if necessary?
• Do you have dependents — kids, spouse, other relatives — who rely on you to provide financial support?
• Do you have family who can financially assist if you faced an emergency?
• Do you have retirement savings in a Roth IRA that you could tap in an emergency?

Your answers to these questions will inform where in that range you should be with your emergency savings.

If you don’t currently have sufficient savings, this would be a good time to start saving more and spending less.