Chapter 5: Saving Money
The right size for your Emergency Fund depends on your life situation, your income stability, and how much peace of mind you want.
At the bare minimum, aim for two months of “needs” from your budget — these are your essential living expenses like housing, utilities, food, transportation, and insurance. But most financial advisors recommend a more comfortable 3–6 months’ worth of basic expenses.
If you have a family, own a home, or your income is irregular, it’s smart to aim higher — closer to 6–9 months of expenses. A larger cushion gives you more breathing room to handle job loss, health issues, or other unexpected challenges without financial panic.
Siobhan’s Emergency Fund
Before 2019, Siobhan lived paycheck-to-paycheck without an Emergency Fund, which made surprise bills like car repairs or taxes stressful to manage. Now, she and her husband keep a 4-month Emergency Fund to ensure they could still pay their mortgage and bills even if one of them lost their income.
Amanda’s Emergency Fund
Prior to 2019, Amanda was also living paycheck-to-paycheck without much buffer. When Amanda was renting her apartment in Ontario, Canada, she kept a 3-month Emergency Fund. She had a stable job, no dependents, and a used car that was in good working condition. But when she moved to England, where her life and work became less predictable, she increased it to 6 months of basic expenses for extra security. When she was preparing to quit her corporate job a couple of years ago, she increased it to 12 months to give herself some extra buffer. To do this, she had to significantly cut back on her everyday spending and found side hustles to earn extra money.
A “Baby” Emergency Fund for Debt Repayment
If you’re carrying a lot of high-interest debt (like credit card balances), you may not want to delay debt repayment too long while building your Emergency Fund. In that case, consider starting with a “baby” fund of at least $1,000 to handle minor emergencies, then focus on paying down your debt while slowly growing your fund over time.
How to Calculate Your Emergency Fund Goal
Let’s say you spend about $3,000/month in total, but only $2,000/month on true needs (housing, utilities, food, transportation). Here’s what your target fund would look like:
3-month EF = $6,000 ($2,000 × 3 months)
4-month EF = $8,000 ($2,000 × 4 months)
5-month EF = $10,000 ($2,000 × 5 months)
6-month EF = $12,000 ($2,000 × 6 months)
Once you know your monthly “needs” number, multiply it by the number of months you want your fund to cover — and that’s your Emergency Fund goal.
Getting Started
If you don’t yet have an Emergency Fund, start now — even small contributions add up. You can:
Begin with just $25 or $50 per paycheck.
Direct any extra money (tax refunds, bonuses, side hustle income) straight into your fund.
If you already have savings, move part of it into a separate account and designate it as your Emergency Fund.
The key is to start building as soon as possible, so you’re ready when life inevitably throws a curveball.
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