Dave Says: What's the Emergency Fund Limit?

Dear Dave,

We make $100,000 a year. How much money should we have in our emergency fund?

- Debbie

Dear Debbie,

You should have anywhere from three to six months of expenses in your emergency fund. Keep in mind I’m saying EXPENSES, not earnings. If you spend everything you make, that would be a minimum of $25,000. If you don’t have any debt, and it takes you $3,000 a month to live, then you’d be looking at $9,000 to $18,000 in your emergency fund.

Remember, too, Debbie, that your emergency fund is not an investment, it’s a barrier to help absorb the blows when life comes knocking. Remember Murphy’s Law, and how it says that if something CAN go wrong it WILL go wrong? Having your emergency fund in place is great Murphy Repellant. When you’ve got a fully-loaded emergency fund, it can turn a disaster into nothing more than a minor inconvenience.

- Dave