Let’s face it: an emergency fund of some sort is a necessity. However, some of my readers think a single emergency fund isn’t enough (remember, this comment was discussing the personal finance of a single person):
Aside from the 6 month contingency fund he has saved, does he have emergency funds for insurance deductibles, a major auto repair, a major house repair, medical/dental fund over catastrophic limits or things that aren’t covered, and other personalized emergency fund lines? I believe you should keep the income disruption fund separate from emergency fund. Traditional way of thinking about emergency fund only accounts for living expenses, but not real emergencies outside of income disruption. Is 6 months contingency fund really necessary or is it enough? Is he in a high risk occupation that should require a 12 month contingency fund?
I’ll tell you right now that having five or more emergency funds is overkill – it’s not worth the time to manage that many different cash accounts.
However, I do have two emergency funds. One of them is simply for salary replacement in the event of losing my job or career transition. This contains the equivalent of four months of take-home salary in it (I’m targeting six to eight months’ worth in the account).
The other account is basically for all other emergencies, including the ones listed above. I put about $500 a month in it and usually pull out $200 in an average month since I started it.
The truth is that you should do what feels comfortable to you. It’s a huge risk not to have an emergency fund at all and thus I firmly recommend one. Anything beyond that is a matter of personal preference. Just remember that there are multiple kinds of emergencies, and you may eventually have a “perfect storm” of such events.