January 16, 2020

how to determine the exact amount you need for your emergency fund

An emergency fund is a fund that is meant to be used ONLY in case of an EMERGENCY.

What Is Define as an Emergency?

A Pandemic (eg COVID-19), Car broke down, lost of a job, sick/surgery and unable to work, travel due to death, accident, major unexpected home or car repairs, and so on. Your emergency fund is meant to make unexpected times a bit less stressful and to help you avoid getting into debt (or more debt). To do this, you should treat your emergency fund more as insurance and not an investment- you will not build wealth with this money- you will cover yourself when things happen.

This money is not meant to give you returns and this is because it is not invested in the market rather is saved on a high yield savings account or a money market account or a traditional savings account. Where this money gives you returns is when you have less stress because you are able to cover the unexpected and cover life without asking to borrow money and so on.

So how much should you really have?

It is recommended by the experts to have 3 to 6 months saved and if you are self-employed that would be 9 to 12 months. The reason for this is because it can take up to 6 months (or more) for someone to find a new job depending on your experience, position, industry, and location.

An emergency fund is NOT a one-size-fits-all, so your number for 6 months is completely different than your neighbor's number for 6 months.


1. Calculate ONLY your NEEDS to a T.

Your emergency fund is only meant to cover your needs/essentials, this number will not be covering your everyday expenses (when life gets hard you do not need to have your everyday expenses). Calculate how much you pay on your needs on a monthly basis.

What are your needs?

Your needs are:

  • Rent/Mortgage
  • Rent Insurance/ Mortgage Insurance
  • Car Insurance
  • Life Insurance 
  • Utilities (water, electricity, gas/heat)
  • Transportation (gas or public transportation)
  • Groceries
  • Phone Bill
  • Minimum debt payments 
  • Taxes
  • And everything else that MUST (need) be cover on a monthly basis
DO NOT include additional debt payments or savings- these payments would stop at the point the emergency happens and will restart once you get back on your feet. 

TIP: If you do not want to calculate your needs to a T and prefer having the extra money, use your monthly income as your number. 

how to determine your exact emergency fund amount

2. Add an Additional $100-$200 To Your Monthly Need Number

Adding an additional $100 to $200 to your monthly number will give you some additional breathing room or wiggle room. If additional things were to happen during this hard time having the extra money will help you get through the moment. 

Remember your emergency fund is meant to cover major unexpected repairs on your home or car, it is also meant to cover travel due to death or sickness and funeral expenses- this is where the extra $100-$200 comes into place. $200 X 6 months= $1,200 that can help you cover any of these expenses.

3. Use The Worst-Case Scenario 

Using the worst-case scenario will leave you with extra money during the best scenarios and will cover you during the worst. Utilities are variable expenses when calculating your number use the highest amount you had paid on utilities, this could be anything from the highest you have ever paid on gas during the winter or the highest you have ever paid on electricity during the summer and so on. 


  1. After you have all of your amounts figured out, its time to add them all together- this number represents the amount you will need in just 1 month to cover yourself.
  2. Now you will multiply this number times 3 or 6 or 9 or 12 (or whichever number of months you wish), that final number is how much you need to be able to cover yourself for those months. 

EX. $1,500 (the equivalent of all of your needs) X 6 (months) = $9,000 is how much you need on your emergency fund to be covered for 6 months. 

At this point, you will want to figure out by when you want to save this number, once you do you will take your emergency fund number and divide it by your timeframe this number will give you the exact number you will need to save on a monthly basis from now on to be able to achieve your emergency fund number. 

EX. $9,000 (emergency fund amount) / 12 (months)= $750 will need to be saved for a year to be able to accomplish this goal. 

4. Always Adjust Your Number

As life goes on and you continue to grow, have a family, move around, buy a house, and so on your emergency fund should grow with you. What can cover you now for 6 months might not be the same number that can cover you in 2 or 5 years from today. It is very important to keep adjusting your emergency fund number as you grow like this no matter when life happens you know you have a safety net that will cover you. 

How to calculate your emergency fund amount

Remember, your emergency fund is a safety net, its main and only purpose is to cover you when life throws you curve balls. This money should not be invested in the market or anywhere, it should remain in an account where you can easily access it if things were to happen but that it is also separate from your everyday checking account. The best places to save your emergency fund are high yield savings account or money market accounts.

You Should Also Read: Everything There Is To Know About High Yield Savings Accounts

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