The Emergency Fund

Expecting the unexpected is part of life. Cars break down, we get sick, and jobs may be lost. Putting aside some money is key to creating a financial buffer for these unexpected life events. An emergency fund should be based on your “survival number,” which is the minimum amount of money you need to stay housed, employed, and financially stable.

Step 1: Calculate Your Survival Number: List your essential monthly expenses, such as your rent, utilities (electricity, heat, water), basic groceries (simple, low-cost food), essential transportation, and minimum debt payments. Exclude all non-essential expenses like streaming services, eating out, and shopping.

Step 2: Apply the Multiplier:

• If you are single, renting, or have stable income, consider three months.
• If you have dependents, a car loan, or irregular income, use six months.

For example, if your survival cost is $1,000 per month, your target emergency fund should be between $3,000 to $6,000.

Keep your fund in a separate high-yield savings account and save it for true emergencies such as medical needs, essential repairs, or job loss.