As a financial planner, I’ve had countless conversations with clients about building emergency savings. High earners or those with significant assets often think they’re immune to financial disruptions. 

But, having a solid emergency savings fund is just as crucial for someone with a six-figure income as it is for anyone else.

Let’s dig into why it matters, how much you need, and where to keep those funds. Plus, I’ll share some insights from my financial planning experience.

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Why Do High Earners Need Emergency Savings?

Income Volatility Can Happen to Anyone

One of the most common misconceptions among high-net-worth individuals is the belief that they don’t need emergency savings because they’ve “made it” or “I got this.”

However, let me tell you about a client of mine (we’ll call him John). He’s a senior executive doing well, earning a strong income with a solid investment portfolio. Then, the unexpected happened—his company faced a merger, and he was suddenly without a job for nine months.

John had significant investments, but they were tied up in real estate and retirement accounts. If he didn’t have cash set aside in his emergency fund, selling off investments would have meant paying capital gains taxes and potentially selling at a loss during a down market. 

John’s emergency fund gave him the liquidity he needed to weather that storm without touching his long-term investments.

Managing Lifestyle Inflation

When your income increases, it’s easy to let your expenses rise, too. Bigger house, fancier vacations, private school tuition—all of these add up. 

Higher income often leads to more significant financial obligations, and that’s okay, but it also means you need a larger safety net.

If you’ve built a lifestyle based on a high income, maintaining it during a financial disruption becomes more difficult without adequate savings. I often tell clients, “You don’t want a luxury lifestyle funded by emergency savings or debt.”

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How Much Should You Save?

My Standard Advice: 3-7 Months

Most financial advisors recommend saving 3-7 months of living expenses in an emergency fund or reserves. This cushion allows you to cover your rent, mortgage, utilities, groceries, and any other essential expenses if your income were to stop suddenly.

I like to add to this rule of thumb with qualifiers for one income families 6 to 7 months of savings will suffice. However, for two income households 3 to 4 months of savings will cover in the event that the family’s income is reduced.

Now adding to this for higher earners, the stakes are considerably higher. Your expenses are likely proportionately greater, too, so a more adapted emergency savings is critical.

Tailoring Savings to Your Situation

Depending on your situation you may need to consider saving more than the standard 6 to 7 months of expenses. You may feel that 12 months’ worth of expenses is the minimum, just for peace of mind. 

If you’re an entrepreneur, senior leadership, or consultant with fluctuating income, or if you’re nearing retirement, having that additional buffer makes a huge difference.

Ask yourself these questions:

• How secure is my income? If you’re self-employed, you might want a more extensive emergency fund to cover leaner months.
• What are my financial obligations? Do you have kids in private school, support aging parents, or have a high mortgage? All of this affects how much you should save.
• How easily can I access other assets? If most of your wealth is tied up in long-term investments, you’ll want a more substantial emergency fund.

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Where to Keep Your Emergency Savings

Liquidity is Key

An emergency fund should be readily accessible. That means avoiding investments like stocks, which can fluctuate in value, or assets like real estate, which aren’t easily converted to cash.

For high-net-worth individuals, this can be tricky. You’re likely used to optimizing every dollar, but in this case, it’s better to err on the side of caution. 

You don’t want to be forced to sell off assets in a down market.

Here’s what I recommend:

Immediate Access: High-Yield Savings Account

This is your first line of defense. Keep at least 3 months of expenses in a high-yield savings account. 

These accounts are FDIC-insured and easy to access in an emergency. You won’t earn a ton of interest, but that’s not the point. 

The goal is to have liquid cash available within 24-48 hours when you need it most. Preferably this is in an account that is not linked within the same institution to your operating account. 

For example, you bank at XYZ Bank, and QRS Credit Union has a high-yield savings account and you can move money usually in 24 to 48 hours. But not as easy as moving funds from your savings at XYZ Bank to your checking at XYZ. 

In most cases the funds within XYZ will be available in the checking account immediately, and we would prefer to place some speed bumps and create a small amount of friction.   

The benefit to you is that the funds are not easily accessible but are still earning higher interest while providing you with the critical emergency savings. 

Tiered Approach: Money Market Accounts or Short-Term Bonds

Once you’ve saved 6-7 months of expenses in a savings account, consider putting additional funds into a money market account or a short-term bond(s). These options offer slightly better returns without sacrificing liquidity.

Think of this tiered approach as building layers of protection. Immediate cash first, and slightly longer-term investments second. 

I use this method myself and often recommend it to clients who want their money to work a little harder while still being available if needed.

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Replenishing Your Emergency Fund

Use it, Don’t Forget It

Once you’ve built your emergency fund, you might assume the hard work is done. But, if life throws a curveball and you need to dip into your fund, it’s crucial to prioritize replenishing it as soon as possible.

After all, the peace of mind that comes with having an emergency fund only exists if the money is there when you need it.

Automate Your Savings

One easy way to build or rebuild your emergency fund is by setting up automatic transfers. By automating the process, you won’t even have to think about it. 

This technique is especially useful for high earners who may have extra cash flow but lack the time or discipline to manually contribute to their savings each month.

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Alternatives and Supplemental Strategies

Can You Rely on Credit?

Some high earners assume that because they have access to low-interest credit lines, they don’t need to maintain a large emergency fund. 

The argument is, “Why not just use a home equity line of credit (HELOC) or personal loan in a pinch?”

While credit can provide a cushion, it shouldn’t replace liquid savings. Relying on credit can be risky, especially during economic downturns or when interest rates rise. 

You want to avoid piling on debt during an already stressful time.

Make Sure You’re Insured

Insurance can act as a supplemental emergency strategy. If you don’t have adequate health, disability, or life insurance, a medical crisis or injury could wipe out your savings quickly. 

High earners should consider disability insurance, especially if their income relies heavily on their ability to work.

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What’s Next: Protect Your Financial Stability

Emergency savings should not be overlooked and are for all income levels. They are a critical part of your financial plan, no matter how much you earn. 

Having the right amount of savings ensures you can navigate financial disruptions without jeopardizing your long-term goals. Take the time to assess your situation. 

How stable is your income? What are your fixed expenses? How quickly can you access other assets? Based on these answers, determine how much you need to set aside and build your emergency fund. 

Emergency savings is A Small investment in your financial stability. 

Have you checked out the Organize Your Financial Life book? The book includes resources to assist with emergency savings and the other foundational areas of your finances. 

Get the complimentary book here.