Why is 3 Months the Rule for Emergency Savings?

In the previous blog post, I looked at how many people have emergency savings.  Many financial advisers suggest having three months of expenses saved up.  Why is three months “the rule?”  Why not six months or one month?

The primary occasion for needing emergency savings is when a person loses their job. After losing a job it is possible to get unemployment compensation, which provides some income while looking for new work.   However, while about half of the unemployed get unemployment compensation, the other half either don’t apply or are not eligible to receive payments. This means a large number of the unemployed must rely either on emergency savings or getting help from friends and relatives.

How long is the typical person unemployed? The Bureau of Labor Statistics has tracked data to answer this question since 1948. The average (mean) length of time people are unemployed is almost four months (3.8) and the average (median) is slightly more than two months (2.1). These two values suggest the typical person who becomes unemployed has no job for between two and four months, which leads to the three month rule.

However, just because the average person is unemployed between two and four months doesn’t mean the three month rule is right for you.  Some people are unemployed for longer and others for shorter periods of time than average.  The results are published each month here.

The table for January 2015 shows the older you are, the longer you are typically unemployed.  For example the median 16 to 19 year old is unemployed just 8.5 weeks, while someone 55 to 64 years old is unemployed  16.1 weeks.  This means older people need almost twice the emergency savings as the young.

After age 25 women on average are unemployed longer than men.  This means if you are female you should save more than if you are a male.

Interestingly, Asian men have the longest spells of unemployment.  The median Asian man is unemployed 24.5 weeks, which is over twice as long as the median White man (10.5 weeks).  This means Asian men should stash more money away.

It is impossible to predict the  perfect amount of emergency savings.  However, the government table and the companion table that track unemployment by occupation and industry help people get a better idea of if they should have savings of more than three months, or maybe even less.

In the end the perfect amount of emergency savings is the amount that lets you sleep soundly at night, knowing you are protected in case you unexpectedly lose your job.

6 thoughts on “Why is 3 Months the Rule for Emergency Savings?

  1. Our company is one of the first companies that has actually specialized in providing cemeteries for sale throughout the governorate, at the highest level of finishing and interior equipment, which the customer requires within the specifications of the burial site that he wishes to purchase. We guarantee that you will receive a cemetery characterized by the following: مقابر للبيع

  2. شركة عزل فوم بالرياض in Riyadh possesses advanced equipment and devices to detect leaks in different places, and can treat various problems with the presence of a team of workers and engineers who are able to protect buildings from the consequences of water leaks as soon as possible without cracking or demolishing walls and floors.

  3. If you are an artist or interested in drawing of all kinds, you should browse طقم فحم ​website to get the basic tools that will help you to create and get the best out of your drawings. Picato provides different types of colors from wood, charcoal pens, pencils, watercolors, pastels, ink, markers and acrylics. Piccarto also provides Paint tools, sketchbooks, brushes, and studio tools.

  4. في حين أن تغيير زيت المحرك والفلتر هو مجال رئيسي لصيانة السيارة ، إلا أنه لا يتم تصنيفه كخدمة لأنه لا يشمل النطاق الكامل لفحوصات السيارة المطلوبة لختم السجل الخاص بك أو لإعادة ضبط ضوء الخدمة. يعد تغيير زيت المحرك والفلتر بنشر متنقل الكويت طريقة رائعة لضمان الأداء الموثوق به وتزويدك براحة البال إذا لم تكن خدمتك مستحقة بعد. إذا كانت سيارتك مستحقة للخدمة ، فعليك اختيار خدمة مؤقتة أو كاملة.
    كما نقدم ايضا من على موقعنا موقع تسليك مجاري الكثير من خدمات الكويت مثل خدمة تصليح طباخات الكويت وخدمة نجار شاطر الكويت

Comments are closed.