Calculating How Much Your Emergency Fund Should Be.


You know you need an emergency fund - the experts talk about it all the time. But the numbers seem daunting: six months to a year's worth of expenses. For most, it's tough to save that amount. But do these savings targets accurately reflect what you need?


Aim for a minimum

Accumulating savings is a challenge, so if the hurdle of an emergency fund seems too big to overcome, start with something smaller. If you have unexpected car repairs, veterinary bills, emergency room visits, or other immediate crises you have to deal with, you'll need cash at your disposal. A minimum emergency fund can help you take care of these one-time costs.

Start with two weeks' salary or $1,000, whichever is higher. That way you can weather the stressful events without having to go into debt.

In the event of an ongoing challenge, you'll need a bigger emergency fund that's designed to keep you in sound financial health. For example, your emergency fund should be deep enough to meet your day-to-day living expenses in case you lose your job.


Calculate your expenses

Experts argue that your emergency fund should cover several months' worth of expenses. It should not replace your salary but keep you afloat. Add up your essential expenses and multiply it by three to six months.

While some experts say you shouldn't put too much money in your emergency fund (particularly, if you can earn greater return in another investment vehicle), others like Suze Orman argue for even more to be set aside - 8 to 12 months' worth of savings.

That is why it's important to analyze how long your period of unemployment might last, and what other sources of support you have to draw from.

For example, if you have a side gig or part-time job elsewhere, try to earn as much income as you can from that source. When you do, your emergency fund may not need to be as large.


Take your household situation into account

The number in your household will also determine the depth of your emergency fund. If you're a sole earner, plan for substantial savings. But if you have a partner who's also an income earner, or who can maintain employment while you're experiencing joblessness, you can calculate for fewer months' worth of cash in your emergency fund.


Run the numbers

If you're looking for employment, you'll want to eliminate discretionary expenses. So to calculate how much you need, budget for the essentials:

  • Rent or mortgage
  • Food
  • Car payments
  • Health care
  • Insurance
  • Debt payments
  • Electricity
  • Heat
  • Water
  • Internet
  • Cell phone


You may have others: Take a few minutes to figure out what you can and cannot live without. When you've finalized your list, start saving! Take pride in doing something positive and practical for the future. And if you're lagging, keep at it - a little bit put away for a rainy day can help you get through the more challenging times ahead.

The information mentioned in this article is for informational purposes only, is intended to provide general guid-ance and does not constitute legal or tax advice. Each person's situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Popular Bank does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.