Calculating your Emergency Fund

September 08, 2020
Share |

I teach that everyone should have an emergency fund of 3-6 months of essential expenses. Typically 3 months is sufficient if you have a secure job with consistent pay or there is a dual income household. Typically 6 months is best if you have inconsistent pay (commissions, bonus, etc) or only one household member works.


However, how much your expenses are in an emergency is much different than how much your typical expenses are. I trust that if you lose your job and have no income, you won’t be planning a vacation or going out for a nice steak dinner! These are considered discretionary expenses and should not be included. For this purpose, we will only look at what the expenses would be to keep the household going. I realize this will vary from family to family but below are the expenses that I include in my emergency fund calculation.


Essential Expenses (include in emergency fund calculation)


  • Groceries
  • Utilities
  • Mortgage/Rent
  • Transportation
  • Home repairs and supplies
  • Insurance
  • Taxes
  • Medical
  • Pets
  • Personal Care (basic hair, clothing gym, products, etc.)
  • Internet


Discretionary (do not include)


  • Dining out
  • Gifts
  • Home Goods
  • Non-Basic Personal Care (expensive clothing, gym memberships, etc)
  • Entertainment (vacation, concerts, movie out, etc.)


Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.