Finances & Money

Should Your Emergency Fund Be Affected By Your Location?

by Kevin

This is a guest post from Kevin at No Debt Plan. He writes to show you how to get out of debt and invest for the future.

The old adage in personal finance for emergency funds has typically had two or three sides. For individuals (one income) you need to have at least 6 months of living expenses saved up with 12 months being the ultimate goal. For dual-income couples, a minimum of 3 months may suffice to start with because it is unlikely both incomes will disappear. If that dual-income couple has children, the minimum requirements go back up.

Obviously the more money you have saved in the bank the better, but these have been the general guidelines.

Yet today with the economy in shambles in certain parts of the country — California has an unemployment rate over 10% the last time I checked — should we start tying our emergency fund to our part of the country?

The Benefits of a Locality-Based Emergency Fund

Doing this can really take into account what is going on in your city, your suburb, or your neighborhood. If your part of the country is just getting hammered economically, it should benefit you to have a larger emergency fund. How much larger isn’t easy to pin down — that would mean you know exactly how long the bad economic times are going to last, and if you know that then you don’t need my advice.

The Risk of a Locality-Based Emergency Fund

The real risk here is you might be persuaded to underfund your emergency fund if your local economy is doing really well. You take on the type of mentality that says “Everything is peachy, what could go wrong?” So you don’t put as much money into your emergency fund. This serves you well until.. uh-oh, something happens to your job. Suddenly you are up a creek without a paddle.

Adjust to Your Economy — But Only in One Direction

I would recommend adjusting your emergency fund based on your local economy, but only in the direction of more savings. I would not put less money into saving because times are going well in your area. You never know when things might turn.

But if you are living in a hard hit economic area it makes a lot of sense to bump that emergency fund up as much as possible. Massive layoffs from the company down the street will likely have an impact on you in some way. Maybe your company sells to those employees, maybe your house goes down in value, or maybe your property tax increases to pay for the lack of folks contributing to the tax base in your area.

I can’t tell you how much more you should bump your fund up to. Maybe a year is the new minimum for you. Maybe 24 months. That’s a lot of money to have as a cash reserve, but in uncertain economic times it may be the one thing that saves your skin.

About the author

Clever Dude


  • That is a thought provoking argument. On the one hand you should only consider your personal economy but on the other hand your local economy could be a part of your personal economy. Were I to design a weighted formula for everyone’s emergency fund I’d proabaly give local economies a 5% weighting.

  • It’s not just the local economy that should be considered when determining the size of your emergency fund. You should also consider: how well your particular job market is holding up (a nurse will find it much easier to find work than a builder these days) and your marital status (if you can’t rely on a second income because you’re single, or perhaps because your spouse is disabled, your emergency fund should be 8 months or more of your monthly expenses, rather than 3 or 4 months).

  • 12 months of living expenses? Give me a break! I understand its a good idea and the reasons behind it but how many people have that amount saved in a cash account? 2%?

    How many months of living expenses do YOU have saved?

    We are at about 2 months.

    • @Danielle, we have almost 6 months of EXPENSES saved up, and it took us about a year to get to that level. Yes, many people have very little saved, but just because that’s the norm doesn’t mean it’s right.

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