Dr. Ndubuisi Egwim says to calculate your essential monthly expenses—bills, housing, food, transport—then multiply by three months for most people, six or more if you're self-employed. Keep it in cash, not investments, so a market crash doesn't force you to sell.
The next question I often get is, okay, Dr. Andy, how much is the emergency fund? How much should I keep aside? Look, there's no magical number, but here's a simple way to think about it. In my book, I described the number. I said, work out your essential monthly expenses, not everything you spend money on. That's in chapter 2. The things you genuinely need to keep your household functioning, compulsory bills, mortgage or your rent, electricity, water bills, Food, because you've got to eat, right? Essential transport, childcare, necessary family support to support your family, and so on. So people often tell me, my expenses change every month. Yeah, of course they do. So look backwards, take the last 3 months and calculate an average, okay? Including the family support you have to send, okay? Or even better, take the last 12 months, add up all the essentials, divide it by 12. Don't skip this bit. Don't skip it. In fact, once you know the monthly figure, you can start deciding how many months of expenses you you want to save to have available. For some people, 3 months might be reasonable. Okay. For somebody that is self-employed or you're running a business, you're working irregularly or with some unpredictable income, you may feel more comfortable with 6 months. Okay. There's no universal number. The principle matters more. Okay. Your investments shouldn't have to be sold to rescue every financial emergency. I see people jump straight into investing without doing some of these things. Now, sometimes it ends painfully, especially when the market goes down. So, safety first.
