24 May 2025 4 min read Personal Finance

Float, Don't Freefall (Step 6: The Parachute Fund)

Why 3-6 months of expenses is the ultimate emergency fund and how we can leverage it.

And we'll all float on, okay.

What The Heck Is A Parachute Fund?

You’ll probably see this called an Emergency Fund elsewhere. But we already covered our $1,000 Emergency Fund in Step 3. Now, it’s time to talk about a bigger, more comprehensive safety net: the Parachute Fund.

A Parachute Fund is 3–6 months of living expenses set aside in a no-risk account, only to be used if extenuating circumstances deem it necessary. We’re talking job loss, unexpected medical bills, or other life-changing events. Having this fund means we can land softly and get back on our feet instead of spiraling into financial freefall.

If you're just now joining us, here’s where we’ve been on our Base10 Basics journey:

Step 1: We created our Budget
Step 2: Covered our Essentials
Step 3: Set aside $1,000 in our Emergency Fund
Step 4: Took advantage of our free money with an Employer Match
Step 5: Shook off the chains of Credit Card Debt

Now let’s talk about the Parachute Fund:

How much to set aside
Where to keep the money

I Need To Set Aside How Much?!

Yes. 3 to 6 months of expenses sounds like a lot. And it is! But this kind of savings helps us sleep at night when life throws a major curveball. Losing a job and now have no income? That Parachute Fund lets us glide gently to safety rather than crash-land into chaos. It might even give us breathing room to recover from burnout, take care of our health, or be picky about choosing the right next job.

This fund gives us options. We’re no longer stuck shotgun-blasting applications and accepting the first job offer just to keep the lights on. We can treat this as a transition period, not a life-ruining event.

For the rest of this post, we’ll focus on job loss as our example. But remember: this fund cushions any blow that knocks out our income.

3 Months to 6 Months is a Huge Range

It is! And that’s on purpose. This is where the personal in personal finance really kicks in. Let's talk about why the range exists, and how to figure out where we fall within it.

Do We Really Need 3 Whole Months?

Saving less than 3 months means we're seriously limiting our options. With only 1–2 months set aside, we’re under pressure to replace income fast. That pressure can lead to poor decisions and missed opportunities.

I’m Terrified That 6 Months Won’t Be Enough

On the flip side, saving more than 6 months can expose us to different kinds of risks:

We might lose urgency in our job search.
Extra money in no-risk accounts can lose value to inflation.

So while more savings might bring peace of mind, there is a tradeoff.

So… 3 Months, 6 Months, or Somewhere In Between?

Here are a few key questions to guide where we land in that range:

1. How secure is our job?
Been with our employer for 15+ years, consistently top-rated, and filling a hard-to-replace role? Three months might be fine.
New to the company or on shaky ground? Closer to six months may be the smarter move.

2. How quickly could we find another job?
Medical professionals or in-demand roles? Three months may be plenty.
Repetitive tasks or roles at risk of AI disruption? Time to re-skill and pad the savings.

3. How tied is our job to the economy?
Retail, construction, manufacturing, and hospitality jobs often suffer first during downturns.
Government jobs? More stability through hard times.

There’s no perfect formula here. But getting past the 3-month mark gives us 80% of the benefit. And truthfully, just having something set aside already puts us ahead of most Americans.

Where to Keep This Money?

Let’s talk storage. This fund should live in a no-risk account. And no, this is not where we chase investment gains.

What Counts as a No-Risk Account?

High-Yield Savings Account (HYSA): This is ideal. Most major banks now offer these, but if ours doesn’t, it may be time to switch. We want our Parachute Fund earning as much as possible without risk.
CD Ladders (Optional/Advanced): A Certificate of Deposit (CD) ladder can slightly boost returns, but:
- We need most of the money saved up front.
- There are penalties for early withdrawal.
- We’re locked in if rates rise.

Personally? HYSA is the winner. These days, CD interest is barely higher than HYSA's anyways. And having instant access to our money is way more valuable than chasing an extra 0.2%.

Why Not Invest It?

Short answer: risk. Most layoffs happen during economic downturns. If the market is down and we lose our job, we don’t want our Parachute Fund to crash too. We want this money to be safe, accessible, and boring.

Big Picture: Why This Step Matters

This is a major turning point. We’re starting to think long-term. Ideally, we never touch the Parachute Fund again in our entire career.

If we feel secure in our job, we might not need to go all-in on this step right away. We can start blending this step with future ones based on our priorities. But make no mistake—by getting to this point, we’re building a financial foundation that’s nearly unbreakable.

Next up: Step 7: The Smaller Debts (The Moderate Interest Debt)