Cashtoons

Emergency Fund

March 05, 2022

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

person

This is money that is

liquid

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

liquid assets in bank

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

super dollar

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

house

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

internet

Basic food and toiletries: $400

food

Utilities: $125

utilities

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

car

Student loans: $150

loans

Cell phone (bundled with internet): $50

phone

Other: $30

phone

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.

celebration

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

Sources

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/


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