How much money should I have in an Emergency Fund?

Emergency funds are an interesting topic. Here are a few of my opinions about emergency funds.

How much should I have in my emergency fund? It Depends...

1. If you are dependent on investments to pay for your living...
2. If you are dependent on a job to pay for your living...

This does not seem to "to me" be a one size fits all problem or solution. let me explain, Lots of people will tell you that a 1,000 bucks in the bank is critical for an emergency fund. I would agree, a thousand dollars will help with the broken dishwasher or with a simple unexpected car problem.

I believe that people must understand the difference between an emergency fund and an emergency fund. Lets say for instance that you lose your job. How far will that thousand dollars really get you? Not that far, and How far will living on credit cards get you? Behind, Not that far. That's why it depends. When I think of emergency, I think of real emergencies like.. Job Loss, Death in the Family, Major Medical... I don't really think of... our stove went out as an emergency. Yes, it is important to have money to pay for repairs but this should be all inclusive in your true emergency fund.

Here are my opinions on both above scenarios:

How much should I have in my emergency fund? It Depends...

1. If you are dependent on investments to pay for your living...
       Answer: I would say 1 to 2 years of living expense.
       Why: Markets crash. Interest driven investments can dry up for years at a time. Job possibilities also get worse when you hit those retirement years. You can't afford to think of yourself as a long term investor. You must think of your self as a short term investor. You need high levels of cash and to lower your risk.

2. If you are dependent on a job to pay for your living...
       Answer: I would say 3 to 6 months of living expense.
       Why: It typically takes 3 to 6 months to find another Job to pay those bills. Living on credit will only get you further from retirement and from rebuilding your 3 to 6 months emergency fund. You are the long term investor "if your under age 50". You can still afford to take the risk of market swings. You must have an exit strategy if the market does become bearish.