Emergency Fund

Kim wants to know if she has enough in her emergency fund.

This is money that is

meaning she can spend it easily, like money in a bank account.

Kim saves 10% of her gross pay and has about $7,500 in her savings account to come to her rescue when needed.

If Kim lost her job tomorrow, she would still need to pay for these monthly expenditures: Rent her apartment: $1,400

Internet connection (she is looking for remote work): $60

Basic food and toiletries: $400

Utilities: $125

Car (paid for) - insurance and registration: $85

Student loans: $150

Cell phone (bundled with internet): $50

Other: $30

This makes his total monthly must-have amount = $2,300

Let's find out how many months Derek can go without income: Total liquid assets / must-have monthly expenses = liquidity ratio

$7,500/$2,300 = 3.2

So Derek can go for about 3 months without income before he will run out of money. In general, people want at least 3 to 6 months of coverage. So Derek is doing okay, so long as he is confident he could find another job before the 3 months is up.

Keep in mind: everyone's needs are going to be a bit different. So your target ratio should match your needs.

Sources

https://blog.seedly.sg/personal-finance-ratios/

https://livingcost.org/cost/united-states/or/portland

https://www.nerdwallet.com/article/finance/how-much-should-i-spend-on-groceries#:~:text=What%20is%20the%20average%20cost,out%20to%20eat%20less%20often.

https://www.rent.com/blog/cost-of-living-in-portland/

https://wallethub.com/answers/ci/average-car-insurance-cost-oregon-2140703309/