How to Calculate Your Emergency Fund and Survival Number

When you first start budgeting, paying off debt, or attacking a huge money goal, it could feel as though you’re trying to do so much at once. Sort of like being in a sinking ship and trying to take out the water in bucket fulls. Stop.

Before you start paying off debt, saving money, or investing in the stock market let’s take a look at your emergency fund. On average the rule of thumb is that you should have 3-6 Months worth of living expenses stashed away for a rainy day. I’d like to go even further and have you ask yourself these four questions to help you decide how much you should have put away:

1. How stable is your current job? (1 very, 2 moderate, 3 risky)
2. Do others depend on your income? (3 yes, 2 somewhat, 1 no)
3. If you were to lose your job, how long would it take you to find another job or replace your income? (1- two months, 2- three months , 3 – over 3 months)
4. Without thinking much about it, what’s the first amount that you can think of that will give you peace of mind?

Answer honestly.

Now, grab another sheet of paper and begin jotting down your essential expenses. Essential expenses will be mortgage/rent, utilities, internet, cell phone, etc. Anything that is essential in your life during emergency mode will be listed here.

Now let’s figure out how many months you need to have stashed away.

Tally up the answers above, in parenthesis you’ll find a number system.

EXAMPLE:

In this example I’ll be assuming a role of a nurse with monthly living expenses of $1,500 a month during survival mode.

1. How stable is your current job? 1 – very stable
2. Do others depend on your income? 1 – no, no one depends on my income
3. If you were to lose your job, how long would it take you to find another job or replace your income? 1 – two months to find a new hospital, go through the interview process and get hired. 
4. Without thinking much about it, what’s the first amount that you can think of that will give you peace of mind? $6,000