A recent study by the JPMorgan Chase and Company Institute endeavored to answer the question of how much savings a typical household needs in order to weather the average monthly fluctuations in income and consumption it experiences. Below are their results for 5 different income quintiles.

Except for top earners, households across the income spectrum did not have sufficient liquid assets in place to weather 90% of financial fluctuations observed in the study’s data. Even top quintile households might have struggled if faced with adverse shocks that persisted beyond one month. Thus, if faced with a big decrease in income and an increase in expenses, most individuals would have likely been forced either to draw down on illiquid assets or to take on debt, both of which carry a price tag.

As the study concluded, no household had sufficient savings if the income and consumption changes lasted beyond a month. Typically this is why we advise clients to have at least 3 to 6 months of actual monthly expenses saved as an emergency fund. This extra padding provides some cushion so that you can weigh the best options for your household if the change is permanent.