Ndubuisi 'Andy' Egwim explains how to size an emergency fund: calculate your actual monthly spending on bills, loans, and essentials, then set aside three months' worth. Average a full year of expenses to find one month, multiply by three, and you can exclude nonessentials like optional lessons.
Monthly expenses (not salary).
Three months' worth of monthly expenses.
Someone said, your salary times six months, and I said, no, no, no, no, no. Your salary for six months is not your emergency fund. It's your expenses, whatever you need. You think about your energy bills, your car payment if you've got car payments, your house payments if you use rent or mortgage, your children's if you've got children and you're paying for them to do karate, taekwondo and cello lessons or violin lessons and all that, figure out how much do you really need? And of course, if your children can do without the cello lessons, maybe it might not be part of the emergency fund. Once you figure out what it is that you spend in a month, multiply by three or you can go the other way. Check what you do in 12 months divided by 12 and that gives you one month worth. Then multiply it by three. That's your emergency fund.
