When six months isn’t enough: How to make your emergency fund last through unexpected health crises

In this latest iteration of our Work and Wealth Watch series, where money coach Luca Caruana gives his expert responses to all your questions related to money, work and wealth, we explore how to navigate the uncertainty of major work-life disruptions.

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Dear Luca,

I hope this message finds you well. I’m writing to you because I find myself in a situation that I never imagined I’d be in. I am the COO of a mid-sized company, earning close to €100k a year. Over the years, I followed the conventional financial advice and built up an emergency fund that could cover six months of my expenses. I always felt secure knowing I had that safety net.

However, a few weeks ago, I was diagnosed with a health issue that will keep me out of work for at least a year. The news has left me devastated, and now I’m faced with the reality that my emergency fund, while seemingly solid for six months, may not be enough to sustain me for the long recovery period ahead. I’m terrified that I’ll burn through my savings far sooner than anticipated.

I’ve always been financially responsible, but this situation is making me realise how fragile that sense of security was. I need your advice on how to make my savings last for the next year, and more importantly, how I can eventually rebuild my financial stability after I’ve recovered.

Do you have any suggestions on how I should prioritise my spending, or if there are any strategies I can adopt to stretch my resources as much as possible? And once I’m back on my feet, what would be the best way to build an even stronger emergency fund so that I’m better prepared in the future?

I feel lost and anxious about what lies ahead and would really appreciate your guidance during this tough time.

Thank you in advance,

A Devastated COO

Luca’s Response:

Dear Devastated COO,

First, let me acknowledge the emotional and financial strain you’re going through. It’s completely normal to feel overwhelmed. You’ve done well by saving for emergencies—six months of living expenses is a good rule of thumb, but like any general advice, it needs to be adapted to your specific life circumstances.

Let me share a personal experience: when my daughter was born, she had sensory issues, which meant my wife had to stay home with her for nearly a year, losing her income. At that time, we also had six months’ worth of emergency savings, but we quickly realized that our situation demanded more flexibility and planning than we anticipated. This is a reminder that no amount of planning can perfectly predict life’s curveballs.

In your case, it’s crucial to shift your focus from how much you’ve saved to how you can make it last through careful budgeting. Here are a few key steps to help you manage your current savings and rebuild stronger:

1. Reassess Your Expenses:
   Start by looking at all your current expenses. Can any be reduced or paused? Divide them into ‘essential’ (rent/mortgage, groceries, insurance, medical costs) and ‘non-essential’ categories (entertainment, dining out, subscriptions). For the next year, the goal is to prioritise what you need over what you want.
2. Cut Back on Discretionary Spending:
   This will be tough, but sacrificing some pleasures—like vacations, non-essential purchases, and memberships—will help make your savings stretch. Think of this period as temporary, where the focus is on sustaining your core financial needs.
3. Explore Temporary Income Streams:
   If possible, consider ways to generate income without jeopardising your health. Remote consulting, freelance work, or even renting out any assets you may have could help ease some of the financial pressure.
4. Reach Out for Assistance if Needed:
   Depending on your situation, you might qualify for some form of financial assistance, whether through insurance, a severance package, or government aid. Don’t hesitate to explore these options.

Once you recover, it will be time to focus on replenishing and fortifying your emergency fund. Take it step by step, automating your savings contributions as soon as you’re able to. Instead of saving for 6 months, consider aiming for 9 or 12 months of expenses, especially since you’ve now experienced how unpredictable life can be.

Remember, this challenge—though daunting—will also teach you how to prepare better for future uncertainties.

I hope this helps!

Luca

The Money Coach, from the Money Coaching Hub

CEO & Founder of Monipal

Measure your Money Health in 1 Minute: https://moneycoachluca.scoreapp.com/