Financial advisors are reporting that many households' emergency savings are no longer adequate as living costs continue to climb. Joseph M. Favorito, a CFP and managing partner of Landmark Wealth Management, LLC, stated that while inflation may have cooled slightly, essential prices remain far higher than a few years ago. He noted that if an emergency fund hasn't grown alongside monthly costs, it may no longer offer sufficient protection.
Andreas Jones, a certified financial education instructor and founder of KindaFrugal.com, suggested a baseline of four to six months of essential expenses for most households. He warned that the old three-month rule doesn't stretch as far anymore because inflation has pushed up the cost of groceries, utilities and car insurance.
Unexpected costs can drain a too-small fund quickly, experts said. If an emergency would push someone to use credit cards or sell investments, the cushion isn't big enough. Jonas, another financial expert, observed that the biggest surprise expenses today are car repairs and medical deductibles, both of which have climbed steeply over the past decade and can wipe out savings in a single hit.
Taylor Kovar, CFP, founder and CEO of 11 Financial, added that home and auto insurance premiums, bigger medical deductibles and increased costs for child care or caring for aging parents are also taking a toll on budgets. He said for anyone with variable income or contract work, it's best to save even more since those income gaps can last longer than expected.
Favorito said one consequence of not having an adequate emergency fund is being forced to sell assets at inopportune times, such as liquidating a stock portfolio and realizing an unnecessary tax liability.
Income stability is also important, Jonas said. He and other experts noted that while a six-month fund might work for salaried workers, freelancers and gig earners should aim higher. Jonas advised that if pay depends on commission, tips or shift work, the safety net should cover several slow months. He warned that once savings fall below a month of expenses, financial risk rises even faster because even a short gap pushes toward high-interest credit.
For those nearing retirement, the emergency fund target looks very different, according to Chris Keane, SVP of direct lending at Newfi. Keane said he usually advises keeping nine to 15 months of expenses set aside, noting that replacing income after job loss is far tougher once past mid-fifties. He said you'll know your fund is too small if dipping into retirement accounts during market downturns to cover routine bills, which speeds up depletion and increases risk when stability matters most.
Experts agree that revisiting cash reserves annually—especially during economic uncertainty—is key to staying protected. Keane said holding too much in cash only becomes a concern when routine costs are secure and there's no exposure to job loss. Beyond that, he suggested considering investing excess cash in low-volatility investments to preserve purchasing power.
Kovar stressed that savings doesn't have to be a huge chunk of income, pointing out that small, steady contributions really do add up.