How Much Emergency Fund Do You Really Need? (And When to Increase It)

Here's when it could pay to sock more money away in the bank.

Since I started working, I've consistently added money to my savings account. And at this point, I have enough in my emergency fund to cover about a year's worth of bills.

Now, you may think, "Whoa, that's a lot of money to have sitting in the bank." And that's true. A common guideline for emergency savings is having three to six months' worth of living expenses. But I have reasons for aiming for more. Not only is my income variable, but as someone who's self-employed, I'm generally not entitled to unemployment benefits if work dries up, and so I need that extra protection.

And that's not the only reason to have a larger emergency fund. If any of these situations apply to you, you may want to boost your savings as well.

1. You own a home

When you own a home, all it takes is a string of bad luck to leave you on the hook for costly repairs. It's a good idea to have a robust emergency fund as a homeowner. You never know when several key appliances might break in short order, or when your heating system might go kaput in the middle of winter. If those things happen, you don't want the stress of wondering how you'll pay for them.

2. You have kids

Children have a way of costing more money than you expect, whether because they constantly outgrow their clothes, get interested in new (expensive) activities, or simply require childcare until they're old enough to look after themselves. I recommend boosting an emergency fund once kids come into the mix, because you never know what expenses they might bring.

3. You have pets

In the past month, I've plunked down about $2,500 on tests for my fairly young dog who has joint problems. Medical care for pets can be extremely expensive, and you never know when an issue might pop up. My dog is only four, and I know people whose dogs have needed surgery at a younger age than that. If you take on the responsibility of caring for a pet, pad your savings so that doesn't end up driving you into debt.

4. You have a health condition

If you have health issues with the potential to keep you out of work, it's imperative that you establish a stronger-than-average emergency fund. While disability insurance may help depending on the nature of your work and your ailment, that generally doesn't replace your paycheck in full. A stronger emergency fund can serve as your backup plan.

Since most of these situations apply to me and I'm self-employed with a variable income, I've boosted my emergency savings. That has given me a lot of peace of mind. If you want to sleep better at night, think about increasing your own savings balance. It never hurts to have a little extra protection, and having that money on hand could spell the difference between coasting through your next financial hiccup or landing in debt.