Author: Dan Rafter / Source: Wise Bread
Financial experts have long advocated for the emergency fund: savings set aside to pay for life’s unexpected emergencies. This financial cushion can also help cover your daily living expenses should you lose your job. But is it possible to save too much money in an emergency fund?
Yes, if you could be using that extra money to invest, pay off high-interest debt, or boost your retirement savings.
Here are a few signs that your emergency fund is too big, and that the money in it — at least some of it — would be better used elsewhere.
1. You have more than enough emergency savings to live off
Financial experts have long recommended having three to six months’ worth of daily living expenses covered in an emergency fund. However, this is a general guideline, and you should tailor the specific amount to your unique life circumstances.
If you’re a high earner with a specialized job, for example, you may need a larger emergency savings. If you suddenly lost your job, it may take you longer to find a new position in your field, and your loss of income may be significant. Single people should also consider saving more. With only one source of income coming in, there is much less wiggle room in the budget to withstand a job loss or other financial emergency.
Regardless of how much is in it, your emergency fund should have enough money so that you can pay your mortgage, car payment, phone bill, utilities, and any other daily expenses during a crisis without resorting to credit cards.
To calculate if your emergency fund is too big, you’ll first need a monthly budget that lists all of your expenses. Multiply…
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