It’s human nature to procrastinate. And that’s what many people do when it comes to building an emergency reserve. They think they’ll “cross that bridge when they get there” – but what if you don’t have the resources to cover emergency expenses? Do you want to burden your family with your lack of financial planning?

Here are 3 things to know when building your emergency reserve:

1- Target saving 9- to 12-months of expenses.

It’s been recommended for emergency cash reserves to be at least 3 months of expenses for dual-income households and 6 months of expenses for single-income households. Given today’s economy, job loss is a reality for many people and that’s when they need to use their emergency reserve. How many people do you know found a job in 6 months? Times are different and having 3- to 6-months of expenses in your emergency reserve may not be enough if you no longer have a job. It may be realistic to target 9 months of expenses for dual-income households and 12 months of expenses for single income households. Keep in mind, the more money you make, the longer your job search process becomes – especially if you’re managing people and a P&L.


2- Keep it simple when calculating your expenses.

To calculate how much to save in your emergency reserve, first identify all expenses you would still have if you lost your job. Some expenses may be less than you currently spend (for example, your gas cost may go down but you still need to drive). Make sure to include expenses that you pay once or twice a year. Here are some expenses to consider:

Housing (rent/mortgage, HOA fees, insurance, utilities, taxes)

Transportation (car payment, gas, insurance, ad valorem tax, maintenance, parking fees)

Personal care (dry cleaning, clothing, personal grooming items),

Food (groceries, dining out)

Medical (COBRA, insurance, co-pay)

Pet expenses (food, annual vaccinations)

Child expenses (day care, annual vaccinations, school expenses)

Entertainment (while this expense can be reduced greatly if you’re unemployed, you still need to account for money to have fun in life)

Gifts (another expense which can be reduced greatly, but you can be creative with offering a service like car washing or pet sitting)

Job search expenses (mileage, meals with your connections, networking event fees, etc.)

3- Save money as cash and cash equivalents.

You’ve probably heard you need to keep your emergency reserve in cash, but don’t take that advice literally. The objective is to have quick access to your money in the event of an emergency. Saving your money in cash equivalents such as a money market account may be acceptable to meet your objective. The more money you accumulate in your emergency reserve – for example $100,0000 – you may want to consider using mutual funds which can easily be liquidated in 3 business days. The bottom line is your emergency reserve should be easy for you to access in an emergency. Discuss your options for cash equivalents with your financial advisor.


Building your emergency reserve can be daunting when you look at the total amount. Break it into smaller amounts and gradually add to your reserve. It’ll seem like an eternity before you accumulate the first $10,000 but after that it becomes easier. And remember, when you use your emergency reserve you’ll need to replenish it for the next emergency.



Niv PersaudNiv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Niv does not manage money and does not sell financial products. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”