Ramit Sethi Says You Need a 12-Month Emergency Fund. Is He Right?


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That’s a lot of money to sock away.

Key points

  • For years, financial experts have said that a solid emergency fund is one that covers three to six months of bills.
  • Now, some experts are upping that recommendation, and it could pay to follow their advice.

No matter your age or income level, it’s absolutely imperative that you have an emergency fund. You never know when life might throw you a financial curveball, so it’s important to have cash in savings to cover unplanned bills.

For many years, financial experts said to aim for an emergency fund with enough cash to cover three to six months of essential expenses. The logic was that if you were to lose your job, that sum could get you through a period of unemployment without having to resort to debt or face other dire consequences (for example, losing your home due to an ability to pay your rent or mortgage). 

But recently, some financial gurus have been saying that the old savings convention won’t cut it. And in a recent tweet, Ramit Sethi said you should always have one year of emergency cash on hand.

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Is that recommendation spot-on? Or is it too extreme?

Why a year’s worth of savings could benefit you

A big reason some financial experts have changed their tune on the emergency savings front is that they witnessed the dire impact the pandemic had on a lot of people. Some workers lost their jobs in spring 2020 and weren’t gainfully employed again by the end of the year. And while the COVID-19 crisis was quite extreme, the reality is that we can’t discount the possibility of something similar happening again. 

As such, Sethi’s 12-month emergency fund recommendation really isn’t so out there. Granted, it may be a tough sum of money to accumulate and keep tucked away in savings. But it’s a reasonable sum to keep on hand.

Even if a national or global crisis doesn’t emerge again in your lifetime, you never know when a personal crisis might sideline you. You could end up falling ill, racking up thousands of dollars in medical bills, and being out of a job for six months during your recovery. At that point, you might need a year’s worth of savings to cover your living costs while unemployed plus the cost of your care. 

You might also run into a catastrophically expensive home repair. Say your home needs foundation work that will cost $30,000. Without a large emergency fund, you might easily rack up debt in that situation. 

Work your way up slowly

Although Sethi’s advice to save up 12 months of living expenses is pretty solid, it’s also not so easy for the typical worker to follow. After all, we’re talking about a lot of money to sock away.

If you’re eager to amass a year’s worth of savings, remember that you can slowly work your way toward that goal. Maybe it will take you two years, or three. But the more money you put into savings, the more protection you’ll buy yourself.

And if you really want to boost your savings, try getting yourself a side hustle. Since the money from that gig won’t be earmarked for bills, you should be able to take all of it (minus what you owe in taxes) and put it into the bank. 

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