Emergency Fund Calculator

It depends on how replaceable your income is, not on a rule. Two earners in stable, in-demand roles can defend three months, because the chance of both losing work simultaneously is low. A single earner, a commission-based income, a niche role, or self-employment all argue for six to twelve. The honest question is how long it would realistically take you to replace your income, and the answer is usually longer than people expect.

Because in an actual income loss, discretionary spending is the first thing to go. Sizing a fund against a lifestyle you would immediately cut inflates the target and can delay other goals for years. Count housing, food, utilities, insurance, transport and minimum debt payments — the things that keep arriving whether or not you have a job. Leave out holidays, subscriptions and dining out.

Somewhere you can reach within a few days without penalty or market risk — a high-yield savings account or a money market fund. Not invested in stocks, because the emergencies that cost you a job are correlated with the markets that would be down when you need to sell. Not in anything with a withdrawal penalty. The yield matters far less than the access does.

Usually a small one first, then debt, then the rest. Around one month of essential expenses stops the next unexpected bill from becoming new credit card debt, which is what otherwise makes the debt payoff impossible. After that, a 22% credit card balance costs far more than a 4% savings account earns, so it makes sense to attack the debt before completing a full six-month cushion.

It means the contribution is too small relative to the gap for interest to close it, which is genuinely useful information rather than an error. Raising the monthly transfer moves the finish line far more than any achievable interest rate does — at these balances the yield is a rounding error next to the contribution.