Emergency Fund Calculator: How Much Cash Do You Need?

Wondering how much you need in your emergency fund? Calculate a rough estimate of how much to stash away for a rainy day using this simple formula.

An emergency fund, along with little debt and a sound investment strategy, is a critical component to financial stability. Basically, an emergency fund is just a savings account to help you weather one of life’s unpredictable events like the loss of your job, a medical emergency, or another unexpected expense.

But how much do you need to have in your emergency fund? Personal finance writers like offer vague guidelines ranging anywhere from one month’s living expenses to 6-12 months of income. You can calculate a more accurate picture of how much to have in emergency fund savings using these four factors:

  • Minimum monthly expenses
  • Income volatility
  • Income commutability
  • Existing liquid savings

Minimum Monthly Expenses

Determine your fixed expenses each month (such as your rent or mortgage payment; utilities; student, auto or other loan payments; minimum credit card payments; groceries; and medical expenses).

Next, calculate the absolute minimum amount you would be able to tolerate spending on discretionary expenses like dining out, shopping, and entertainment. (Hint: Be reasonable. If you suddenly find yourself unemployed, you may be able to cut back a bit, but don’t expect you’ll suddenly be able to go months without spending a red nickel in a restaurant or movie theater. Somewhere between 60% and 80% of your existing discretionary spending might be reasonable).

Income Volatility

Do you have a full-time, permanent job that pays you the same salary month-after-month? If so, consider your income volatility score to be one and skip this part. If you are self-employed, work on a contract basis, or rely on bonuses and commissions for income, however, calculate a simple “income volatility score”.

If you receive bonuses or commissions, tally your income for the previous twelve months. What percentage of this figure was salary and what percentage was bonuses or commissions? If bonuses and commissions comprised 10% or less of your annual earnings, score a one; 15%, score a 1.5; 23%, score a 2.3; etc.

If you work freelance or contract jobs, write down how much you earned each month for the previous twelve months, then choose the months in which you made the most and the least. Next, subtract your lowest month’s income from your highest and divide that number by the lowest month’s income. Add one to that number. This is your income volatility score. For example:

$7,800 (high month earnings) - $2,200 (low month earnings) / $2,200 (Low month earnings) + 1 = 2.5 (income volatility score)

Income Commutability

If you lost your job tomorrow, how long would it take you to find a new one? When you find that job, how likely is it to pay at least as much as you now earn? Your income commutability score is how many years you have been working multiplied by 0.5 plus 0.5 for every $10,000 you earn annually over $40,000. For example, if you have worked for five years and earn $60,000, your score is 3.5. Worked two years and earn less than $40,000? Score a one.

Existing Liquid Savings

Finally, determine whether you have any existing liquid savings that you could tap in an emergency. This cash might be in an account for a down payment or vacation. Do not include retirement accounts that contain tax penalties for early withdrawals.

Calculating Your Required Emergency Fund Amount

The formula to calculate how much you need in your emergency fund is:

Min. monthly expenses x Income volatility x Income commutability Existing savings

For example, if your minimum expenses are $2,500 a month, you work a permanent, salaried job, have been working for five years, earn $50,000 annually, and have no prior savings; your ideal emergency fund is roughly $7,500.

I think this will give you a pretty good idea of where your emergency fund should be in an ideal world. For many—especially if you’ve been working a while—the results will seem high. Most of us might be a long way off from that mark, but the estimate is high because for ideal financial stability, you really might need all that money if you lose your job, expect to maintain your standard of living, and hope to land a similar position. Of course, there are a lot of variables that may come into play that this formula does not account for, but it’s a fun place to start.

Download free Excel spreadsheet that will run this formula for you or get the Google Spreadsheets version.

Do you think this formula gives you a fair goal for your emergency fund?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


  1. Thanks for the formula. I tried it out and was only $32 off from my previous estimates. I would say it is pretty accurate :)

  2. Karla (threadbndr) says:

    I was about $600 off originally, but I think I initially underestimated my commutibility factor by leaving out the years I was a SAHM. If I count that time as “working” time (and I certainly wasn’t on vacation those years LOL), my spreadsheet result is VERY close to where I’ve figured my ‘goal’ efund should be – within $15!

    Very nifty little wiget; thank you for publishing it!

  3. it’s asking me for a password to un-protect the sheet.

  4. John Browning says:

    I like the simple, quick way this was explained, along with the example of $50k yearly and stable job of 5 years. Basically the amount to be saved was three times a single paycheck. Ouch. But then the author explained clearly and succinctly why that would be reasonable, and even cited the idea that it can be hard to change one’s level of living– recognize that I’m going to still go to some restaurants, still see a movie now and again. Great advice, and I’m taking it.

  5. Robert Nelson says:

    I have 7,000 dollars in a money market account and I have 2,400 in credit card debt with a rate of 12.00%. Should I pay it off using from the money market? I bring home 4,000 a month with 3,000 in normal debt.I ve had a permanent gov.job for 17 years now. Thank you.

    • Yes, unless you are earning more than 12% on the 7,000 in the money market account (which of course isn’t the case) you should pay off the credit card.

    • Robert – This may sound bizarre, but I say no. Cash is king. Construct a reasonable plan to repay the debt of $2,400, but keep your cash in the bank and keep on saving as well until you’ve maximized a comfortable emergency fund. During a volatile economic time, it’s important to have a healthy emergency cash reserve. Simple math would tell you, of course, that you are losing money while paying the 12% on the CC debt, because your MMA probably earns far less than that, especially right now. However, if you were to lose your job tomorrow, and depleted your emergency cash reserve last month to pay down your CC debt, and it would take you 6-12 months to replace your income with a new comparable job, where will you find the $$$ to cover your essential needs in the meantime? You can’t pay everything with a credit line, you need cold hard cash.

  6. Hi
    This is very useful. I wonder if you can tell me where can i find this formula you used to get the emergency fund?
    Thanks in advance

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