The rule that I know is six months of income, stored in readily accessible savings (e.g. a savings or money market account).
Others have argued that it should be six months of expenses, which is of course easier to achieve. I would recommend against that, partially because it is easier to achieve. The other issue is that people are more prone to underestimate their expenses than their income. Finally, if you base it on your current expenses, then budget for savings and have money left over, you often increase your expenses. Sometimes obviously (e.g. a new car) and sometimes not (e.g. more restaurants or clubs). Income increases are rarer and easier to see.
Either way, you can make that six months shorter or longer. Six months is both feasible and capable of handling difficult emergencies. Six years wouldn't be feasible. One month wouldn't get you through a major emergency.
Examples of emergencies:
- Job loss. Finance basic expenses while looking for a new job.
- Major house repair. New roof, furnace, etc.
- Medical. Particularly if it keeps you from working. E.g. a badly broken leg that requires physical therapy.
- Sudden car replacement.
- Kids. For example, you may have to take time off from work to help a child handle a medical emergency.
Your savings can be in any of multiple forms. For example, someone was talking about buying real estate and renting it. That's a form of savings, but it can be difficult to do withdrawals. Stocks and bonds are better, but what if your emergency happens when the market is down? Part of how emergency funds operate is that they are readily accessible.
Another issue is that a main goal of savings is to cover retirement. So people put them in tax privileged retirement accounts. The downside of that is that the money is not then available for emergencies without paying penalties. You get benefits from retirement accounts but that's in exchange for limitations.
Are you saving enough?
It's much easier to spend money than to save it. There are many options and the world makes it easy to do. Emergency funds make people really think about that portion of savings. And thinking about saving before spending helps avoid situations where you shortchange savings.
Let's pretend that retirement accounts don't exist (perhaps they don't in your country). Your savings is some mix of stocks and bonds. You have a mortgaged house. You've budgeted enough into stocks and bonds to cover retirement. Now you have a major emergency.
As I understand your proposal, you would then take that money out of the stocks and bonds for retirement. But then you no longer have enough for retirement. Going forward, you will have to scrimp to get back on track.
An emergency fund says that you should do that scrimping early. Because if you're used to spending any level of money, cutting that is painful. But if you've only ever spent a certain level, not increasing it is much easier. The longer you delay optional expenses, the less important they seem.
Scrimping beforehand also helps avoid the situation where the emergency happens at the end of your career. It's one thing to scrimp for fifteen years at fifty. What's your plan if you would have an emergency at sixty-five? Or later? Then you're reducing your living standard at retirement.
Now, maybe you save more than necessary. It's not unknown. But it's not typical either. It is far more common to encounter someone who isn't saving enough than too much.