Emergency Fund Calculator

Base it on essential spending, not income

The common advice is three to six months of expenses, and the number people plug in is usually their salary, which overstates the target considerably. What matters is essential outgoings: housing, utilities, food, transport, insurance, minimum debt payments and childcare. Discretionary spending stops in a genuine emergency. For most households essentials are 50 to 70 percent of take-home pay, so the honest target is meaningfully smaller than a naive calculation suggests.

How many months you actually need

Three months suits a dual-income household with secure employment in a field where hiring is quick. Six months suits a single earner, or anyone with dependants or a mortgage. Nine to twelve months is reasonable for freelancers, contractors, commission-based earners and anyone in a specialised field where the next role takes months to find. The variable that matters most is how long it would realistically take you to replace your income.

Where to keep it

The fund needs to be reachable within a day or two and must not lose value. A high-yield savings account or an easy-access account is the right home. Not the stock market: the market falls hardest during recessions, which is precisely when redundancies happen, so you would be selling at a loss at the worst moment. Not a fixed-term deposit with an early withdrawal penalty. Not in the same account as everyday spending, where it gets absorbed invisibly.

Build it before investing

An emergency fund is what stops an unexpected cost becoming credit card debt at 20 percent or more. Skipping it to invest is usually a mistake: the expected return on investments is lower than the cost of the debt you would otherwise take on. The exception is an employer pension match, which is an immediate guaranteed return and worth capturing first.

Starting from nothing

An initial target of one month of essentials covers most of the common shocks, a car repair or a boiler, and is achievable in a reasonable timeframe. Reaching it changes behaviour more than the number suggests, because the next unexpected bill stops being a crisis.