Is A 12-Month Emergency Fund Realistic? + How To Save Yours!

12-month emergency fund

Have you ever thought about creating a 12-month emergency fund? Yes, the general financial advice is to have a 3 to 6-month emergency fund. But depending on your job and the current job market, having a hefty savings plan could be helpful in preventing stress in the long run.

Here’s everything you need to understand about a 12-month emergency fund, if it’s right for you, and how to get one started.

What is a 12-month emergency fund and how much money do you need?

A 12-month emergency sounds pretty straightforward, but for clarity, it’s saving enough money to cover your basic expenses for 12 months. This means saving money for essentials such as rent and groceries, and not three iced coffees a day.

If you’re an individual, you’ll want to consider your basic needs. For instance, groceries, transportation, debts, utilities, healthcare, and personal expenses that affect your quality of living.

For couples, you’ll want to look at the shared expenses. If you have a family, you want to include expenses that affect the whole family.

To find out how much you need to save for your 12-month emergency fund, you’ll need to calculate your basic expenses for the month and multiply that number by 12.

Now don’t let that number overwhelm you. But before you start thinking that saving that much money isn't necessary, here are some things to consider.

When does saving a 12-month emergency fund make sense?

A year-long emergency fund may sound over-ambitious, but here are some example situations where a 12-month emergency fund may be necessary.

If you have an unstable job

Job security isn't a luxury, nor is it guaranteed. If you're not 100 percent certain that your job won't let you go on a moment's notice, having savings may be needed.

It can take about 5 months to find a new job. This may seem like a short time, but remember that many jobs don't offer benefits until after the 90-day grace period. Meaning you may be paying out of pocket for some expenses.

If your household relies on one income

If you only have a single income coming into your household then an expanded emergency fund might make sense for you.

Since finding a job can take some time, it makes sense to have a larger buffer to buy time so you can cover your expenses while you look for a new job.

If you want to start your own business

Becoming your own boss is often a rewarding and lengthy process. Just as Rome wasn't built in a day, neither was a profitable sole-proprietor business.

Having a year's worth of savings with allow you to cover your cost of living while you build your business. And it will help you to outsource work to build your business faster.

If you have any health emergencies

Car accidents, deadly viruses, sports injuries - there are a number of unexpected things that can affect your well-being. And when these unforeseen events occur, you don't always have control of when you'll recover.

Having large savings that can not only help you cover the additional medical costs but also help you focus on healing rather than earning extra money is important.

6 steps to get started with saving a 12-month emergency fund

Saving for your 12 months of expenses will take time, dedication, and some self-discipline. It also doesn’t have to be a complicated process. Follow these six steps to grow your emergency fund.

1. Understand why having a 12-month emergency fund is important to you

If you want to have an emergency fund because it seems like a good idea, you probably won’t make it past 3 months of savings. Without a clear reason for saving, you’ll be more inclined to spend that money on a new phone or your next vacation.

To help keep you motivated and focused on your savings, ask yourself where you see yourself in 12 months.

Are you planning on switching jobs in the future? Would you like to take a sabbatical?

Having a 12-month emergency fund can help cushion a job or life transition.

Other important reasons for having extra money are to support your family or to have a safety net if you are not confident in your job security.

Whatever your reasons, it’s important that it’s realistic and true to you.

2. Determine your monthly income

Tracking your monthly income is especially important if you have more than one income stream. However, if you work a 9 to 5, there are still other income sources to consider, such as

  • Rebates
  • Cash back offers
  • Gifts
  • Tax returns
  • Selling old goods and clothes
  • Any side hustles

When you consider all these things, you may see that you are bringing in more money than you think. When you’re more conscious of the extra money coming in, you can better decide how to use it.

3. Figure out your monthly expenses

Tracking your expenses might seem to like a tedious task. However, without knowing how much you spend each month, you won’t know how much you can put away for your 12-month emergency fund.

Here are a few ways you can calculate your monthly expenses.

According to an article on, one way you can find your average monthly expenses is to gather all your bank and credit card statements for a 12-month period. Add the numbers up and divide by 12 to get your average.

If you don’t want to go through bank statements, you can start from scratch by simply tracking your monthly expenses by hand. Using a spreadsheet, an app, or a pen and paper, choose a month without any major events and write down every time you spend money.

If you want a better insight into your spending habits, you can divide your tracking into categories such as groceries, transportation, rent, utilities,  entertainment, etc. This way, you can see which expenses often get a majority of your income.

4. Determine how much you want to put into your 12-month emergency fund

Once you have some idea of your monthly spending habits and how much you earn, it's simple to find out how much you need to cover your basic expenses for 12 months.

To do this, add up the basic expenses for each month, or find your monthly spending average and multiply it by 12.

When you have that magic number, you’ll want to think about how much you need to put away every month to reach your goal.

Here is an example to help you out. If you earn $36,000 after taxes, you average about $3,000 a month. If your basic expenses are $2200  a month, you take that number and times it by 12 to get 26,400 which is your goal for your 12-month emergency fund.

5. Create a system for adding to your savings

Now that you know how much you need to save, the new challenge is regularly putting away money toward your emergency fund. Here are some ways to get started.

Decide on how much you want to put towards savings

When determining how much of your income you’ll put toward savings, there are many factors to consider. Some budgeting rules will advise you to put away 20 percent of your income.  However, find a number or percentage that is simple for you.

Start with a lower number, something that won’t have a heavy impact on your budget. Then as your income increases or your expenses decrease, you can start adding more.

Know when you will save

Because saving doesn’t give you instant gratification like buying a new outfit or purchasing a plane ticket, it can sometimes be the last thing you do with your money. You are not the only person in the world guilty of trying to save after they have spent most of their paycheck.

Instead, put money away as soon as you get paid. Remember putting money towards your savings is like paying yourself.

Make your savings automatic

The easiest way to accumulate your savings is to make it automatic. There are many banks that have an automatic savings feature that can automatically transfer a portion of your direct deposit into your savings.

Adjust your current budget and expenses if needed

After calculating your income and expenses, you may find that you break even, spending just as much as you earn. In this case, you may need to re-evaluate your spending budget.

You might need a new budgeting system such as the 60-30-10 budget.

Or you may need to start doing things differently to cut down on your expenses.

Either way, there is no shame if your finances aren’t perfect. Having a 12-month emergency fund can help you get them in order.

6. Decide where to save your money

The last step is deciding where you're going to save your money. You may be thinking that a regular savings account or a pile of cash underneath your mattress will do. However, there are some places to save your money that can make your earnings grow.

Open a high-yield savings account

A high-yield savings account offers you more benefits than a traditional savings account.

With a high-yield savings account, you have a higher annual percentage yield (APY) which is bank talk for earning higher interest that will help your money grow faster.

Most high-yield savings accounts offer around 20 times more APY than an average savings account. So if you want your money to grow while it’s sitting in an account, this article is a list of the top savings accounts that offer a high APY and little to no monthly fees.

Try a money market savings account

A money market account, not to be confused with a money market mutual fund, is similar to a high-yield saving account with a little more flexibility.

Money market accounts are available from the majority of banks and credit unions and are federally insured. They also offer support for more withdrawals than high yield savings but do offer limitations on how many times you can take out money.

You may need a bigger deposit to start an account, and certain accounts have varying minimums compared to a high-yield savings account.

6 ideas to save your 12-month emergency fund

Now that you understand how to start your 12-month emergency fund, you may need a little start-up cash to get the ball rolling. Check out these six ideas to help you make some extra money.

1. Start a side hustle

The term side hustle gets thrown around a lot, but in this digital age, starting a side hustle is easier than ever. It all starts with taking a look at what skills you have and seeing how you can monetize those skills.

If you need some ideas, check out the Clever Girl Finance blog post on starting a side hustle.

2. Utilize free offers

Nothing in life is free, right? But there are a number of ways to get free things, such as signing up to get free samples of products, signing up for companies' loyalty programs, and earning money while you shop.

3. Play a saving money game

Saving money can be fun. All you need to do is play a game or trick your mind into putting money away instead of spending it. Here are some ways to do that.

Keep a money-saving jar

Although savings accounts can be beneficial in the long run, sometimes it’s nice to have a daily reminder of how much you are saving. A money savings jar is a great idea.

Try finding a large jar or container to put your money in. Then challenge yourself to try to fill the jar to the top by a certain time.

It can be exciting to see your money grow every time you add to it.

Reward yourself after reaching savings milestones

Create savings milestones such as your first $100 saved or first $1,000 saved. When you hit that milestone, go celebrate in a low-cost way.

This could be binge-watching your favorite show, taking a bubble bath, or taking a day off of work. No matter what your goal is in life, it’s important to reward yourself along the way.

Take full advantage of your savings

Have you ever had a friend buy you lunch or save 20 percent on a pair of shoes?  It feels good knowing that you saved some money.

You can magnify that good feeling by actually saving the money and putting it into your account. The next time your friend buys you a coffee put the $6 you would have spent into your account or savings jar.

Don't spend your tax refund

If you usually get a big tax return each year, tax season can feel like Christmas. You finally have some extra money to get some new tires or buy new curtains.

Although the extra money can be used for a wide range of things, an easy way to get your 12- month emergency fund started is to save part or all of your tax refund.

Sell items you don’t need

Almost everyone has a junk closet or junk garage. You most likely have items in your home that are in good condition but you rarely use.

An easy way to get fast cash to put towards your 12-month emergency fund is to sell what you’re not using. There are so many apps and online marketplaces that make selling items simple and lucrative.

Start small and increase your savings over time

When it comes to a savings fund, it doesn’t always matter where you start but how you finish. If only saving $100 a month is doable for you, that’s ok.

Once your income increases or you start a side hustle, you can increase the amount you put towards your savings.

It’s important to have a 12-month emergency fund

12 months of expenses may seem like a lot of money to save, but it can be beneficial.

Having a 12-month emergency fund can support you in taking extra time off to spend with your family. It can help you handle unexpected expenses or give you the opportunity to quit your job and explore a passion project.

By remembering why you want to save,  having a high-yield or money-market saving account, and understanding your finances, you can be on your way to creating your emergency fund.

Next, find out how to make money quickly to move towards your goals faster!

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