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Quiz: How Much Money Should You Save for an Emergency Fund?

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I love this! It helped me to figure out how much to save!

Last week, I talked about when you should use your emergency fund. This week, I’d like to talk about how much money should be in that emergency fund. You may have read everything from $1,000 up to 6 months of income (or more). So, how much should you really be putting aside in your emergency fund?

How Much Money Should You Save for an Emergency Fund?

Dave Ramsey talks about how you should have a “baby emergency fund” of $1,000 while you’re paying off debt. After you’re debt-free except for the mortgage, he recommends a 3-6 month emergency fund. I think this is a good concept, but I think the $1,000 number is too one-size-fits-all. I also think it hasn’t kept up with inflation over the years. Dave Ramsey has been giving the same advice since 1992, and if you check out an inflation calculator, you’ll see that $1,000 in 1992 is equivalent to $1,722.94 in 2016. That’s a big difference!

Even today, a $1,000 emergency fund is probably fine if you’re:

  • Single
  • Don’t own a home
  • No children
  • Don’t own a car
  • Have a stable income

If that’s you, then save up $1,000 and get to work on paying off your debt!

For the rest of us, I think we need to save a little more. Personally, during our journey to pay off debt, life kept happening and getting in the way of our plans! If we’d had a larger emergency fund, I think our progress could have been a little smoother. In fact, that’s why we did stop paying extra on our debt midway through our journey to save up a larger emergency fund.

Take my quiz to help you think about what makes sense for your family.

Quiz: How Much Money Should You Save for an Emergency Fund?

1. Do you have any debt other than a mortgage (credit cards, car loan, personal loans, or student loans)?

  • Yes: Start your emergency fund with $1,000. Then go to Question 3.
  • No: Go to Question 2.

2. Is your income fairly stable and secure?

  • Yes: Emergency fund = Your essential monthly expenses x 3 (minimum). End of quiz.
  • No: Emergency fund = Your essential monthly expenses x 6 (minimum). End of quiz.

3. Do you own a home?

  • Yes and it is likely to need repairs soon: Add $1,000 to your emergency fund.
  • Yes and it is unlikely to need repairs soon: Add $500 to your emergency fund.
  • No: No change.

4. Do you have children?

  • Yes: Add $500 per child to the emergency fund.
  • No: No change.

5. Does anyone in your household have major medical issues?

  • Yes: Add $1000 to the emergency fund.
  • No: No change.

6. Do you have frequent fluctuations in income? (seasonal work, commission, etc.)

  • Yes: Add $1000 to your emergency fund
  • No: No change.

7. Do you own a car?

  • Yes: Add $500 per car to your emergency fund. End of quiz.
  • No: No change. End of quiz.

What Are Essential Monthly Expenses?

If you’re debt-free other than your mortgage, you should have a full emergency fund of at least 3-6 months worth of “essential monthly expenses”. That means the minimum you could reasonably live on, after cutting all the non-essentials. If you lost of your income today, what things would still need to be paid? This would include:

  • Rent or mortgage
  • Essential utilities (electricity, water, natural gas)
  • Basic food (cooking at home as inexpensively as possible)
  • Basic transportation

It would not include things like eating out, any subscriptions that could be easily cancelled, entertainment costs, or clothing beyond the absolute necessities.

Calculate what your family’s essential monthly expenses would be and multiply it by 3 or 6 (depending on your financial stability and comfort level) to calculate your minimum emergency fund amount if you’re debt-free.

What’s Your Result?

What did you get from the quiz? In our debt snowball days, we would have gotten $3,500-4,000 on this quiz, depending on which home we were living in (one home needed a lot of repair and the other didn’t). I think $3,500-4,000 would have been a lot more reasonable than the $1,000 we tried to use. It would have allowed us enough money to buy a cheap car when our car died. While it might have been possible to buy a functioning car for $1,000 back in 1992, it would be VERY difficult today.

Comment below with your quiz result! Do you think it’s reasonable?

 

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