Summary: I’m a financial advisor for mid-career professionals. This post covers the most common questions I get from clients about their emergency fund needs:
- What is an emergency fund?
- What do high earners actually need an emergency fund for?
- How to calculate your monthly burn rate
- How many months of expenses should you keep on hand?
- How much cash is too much? The one-year ceiling
What is an emergency fund?
Emergency funds are cash set aside for sudden, surprise costs or job losses. They act as a cushion between the financial shock event and having to take on debt or sell your long term investments to pay for these expenses.
What do high earners actually need an emergency fund for?
One of the first questions that comes up during planning discussions with high-earners is whether they have enough in their emergency fund.
In most cases, there is a sizable amount of cash and enough month to month cashflow that could cover most one-off, surprise expenses that come up over the course of a year like having to replace the water heater, an unexpected overseas trip to celebrate a friend’s 40th birthday, etc.
What an emergency fund usually needs to protect against for this group is unemployment. Fixed costs like mortgages and day-to-day living expenses like feeding a family of four are typically high and difficult to pull back quickly. And these are all supported by a job that produces the income to pay for these things.
How to calculate your monthly burn rate
Start by figuring out how much your total monthly expenses are. You should include things like:
- Mortgage
- Other loan and debt payments
- Insurance premiums
- Living expenses
- Childcare
Living expenses like dinners out, birthday parties, vacations, etc. can vary month to month. You can take your past year’s credit card and checking statements and divide by 12 to get a more smoothed result.
The sum of all these is your total cost of living and it’s what you need to continue to cover if you lose a job or experience some other kind of financial setback.
How many months of expenses should you keep on hand?
Once you have your monthly living costs, you can then determine how much of a cushion you want in your emergency fund. This depends on your household’s circumstances and your family’s risk tolerance.
Here’s how I help clients think about how much they should have put aside.
Three months is the bare minimum.
If anyone comes to me with less than this, you can bet it’s going to be a priority to get this built up unless there’s a really good reason not to. I use three months as the minimum because the US Bureau of Labor Statistics (BLS)1 consistently finds the median amount of time someone spends looking for work when they become unemployed is 7.9 to 11.6 weeks. In the event you lose your job and your income is impacted, you should plan on your funds being able to support your life for at least this long.
Six months if you’re more conservative or a family relying on a single income.
The June 2026 BLS found the average duration of unemployment was 25.5 weeks. If you are more conservative or your household only has one income earner, then six months may be a more comfortable cushion to build towards. It doesn’t have to be all at once, but should be something you steadily work towards over the course of a year or two.
How much cash is too much? The one-year ceiling
Usually no more than one year. Past this point, you’re not really buying more safety, you’re paying for it. Even the most conservative unemployment stretches rarely run past ten to twelve months. Too much cash has real opportunity costs. According to Portfolio Visualizer2, a dollar invested in cash in Jan 1996 became a bit more than $2.03 by the end of June 2026. That same dollar invested in the US Stock Market became $20.23.
Learn More
Every number in this piece is a starting point, not a definitive answer for you. The right cushion for you depends on your job stability, your household’s needs, and what else you’ve got backing you up. If you want help figuring out your liquidity needs, feel free to reach out.
Nathan
Founder & Lead Advisor
[email protected]
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Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
1. US Bureau of Labor Statistics. June 2026 Report, Table 12: Unemployment.
2. Portfolio Visualizer Asset-Level scenario modeling for “Cash” and “US Stocks.” Gross returns only, does not include the impact of taxes or fees. January 1996 through June 2026. Data availability upon request.