How this number is made
An emergency fund is a number of months of costs you cannot skip, held in cash. The target is that monthly number times the months you want covered. What you have already saved comes off the target. The rest is divided by what you can add each month.
- Count essential costs, not your average credit-card bill. A restaurant month is not the month you are unemployed.
- Three months if a new job would come quickly and you have no dependents. Six if income is commission, overtime, or a single paycheck.
- Keep the balance where a bad week in the market cannot shrink it. This page assumes no yield.
Formula
Target = essential monthly costs × months. Gap = target − already saved. Months to go = gap ÷ monthly savings, rounded up.
Worked example
$3,200 of essential costs for 6 months is a $19,200 fund. With $4,000 already saved, the gap is $15,200. At $500 a month that takes 31 months, which is 2 years and 7 months.
Questions
Should I invest this instead?
Not the first months of it. The point is that the money is there when income stops. A market drop in the same month as a layoff is the case this fund is for. Yield belongs on cash you will not need immediately.
Do I pause retirement contributions to fill it?
Capture an employer match if missing it is a large giveaway, then fill the cash fund, then raise the deferral. The 401(k) match page shows the giveaway. This page does not know your plan.