Nicole Spector

Sun, Jun 1, 2025, 6:01 AM3 min read

For years, the personal finance rule of thumb has been to have an emergency fund replete with three to six months’ worth of living expenses. This isn’t a bad rule considering that it’s savvy to keep your cash holdings low so that you can maximize investments, but often an emergency fund this size just isn’t big enough.

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Some financial experts, including Suze Orman, Ramit Sethi and Elaine King of Family and Money Matters Institute, think you need a 12-month emergency fund. This may sound excessive, but consider the following reasons why, in 2025, this is a good amount to keep at the ready in a high-yield savings account (HYSA).

Some industries are more volatile than others. The technology sector, for example, is shaping up to be increasingly unstable, with mass layoffs frequently sweeping the field. The automotive sector is also rocky, as is the travel sector. Competition for these jobs is getting fiercer as corporations cut costs. So, you may need a lot longer than three months to replace your job if you work in these fields.

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If your family relies on you in full to keep them sheltered, clothed, fed and so on, you’re all going to be in for an incredibly tough time should you lose even some of your income. An ample cushion in the form of a 12-month emergency fund could literally prevent you from falling into credit card debt as you work to get back on your feet.

Every seasoned freelancer is familiar with those one or two clients who provide them a ton of work. Perhaps these clients have you on a monthly retainer, or maybe they pop up on a seasonal basis and flood you with the bulk of your annual income. And every seasoned freelancer also knows the impact of losing such a client. Nothing is forever, especially not in contract work. Freelancers don’t get severances or access to Cobra health plans. They need a plush emergency fund in the likely event that their major payday falls through.

When a recession strikes, all bets are off. Though the economy inevitably rebounds, there’s no crystal ball that tells us when it will. There is always massive job loss and consequently weakened consumer spending which only leads to more job loss as companies struggle to stay afloat. If you’re one of the many employment casualties, you’ll want a plentiful emergency fund to ride out the storm. On average, people find a new job after five months of searching — but keep in mind, that’s the average. There are many horror stories featuring people with strong resumes who’ve spent a year-plus job hunting after a layoff.