Should the 3-6 months emergency fund be based on our expenses or salary?
Recently saw some sources suggesting an emergency fund should be equivalent to 3-6 months of our salary.
I'd assume that it might not make that much difference for someone starting work since the gap between our expenses and salary may not be that big.
But ideally, our income will have a larger surplus for us to put into savings and investments, and the amount in our emergency fund will differ rather drastically.
Is there a scenario that's better to use our salary as the basis of the fund?
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Cedric Jamie Soh
13 Sep 2019
Director at Seniorcare.com.sg
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Loh Tat Tian
13 Sep 2019
Founder at PolicyWoke (We Buy Insurance Policies)
If you are worried or a spendthrift, use salary.
If you are very prudent, use expenses.
There is no hard and fast rule, but it's meant to put your mind at rest so that you can focus on your next job search.
The numbers are just a guide, but your psychological response to it is the most crucial for it to work.
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Yes, it might not make such a difference for someone just starting work... or anytime. As salary increase, so does commitment (family expenses, marriage, kids...)
3 to 6 months is itself a wide range. I will say at least 3 months of salary.
Or 6 months of expenses :)
PS: personally I don't have emergency funds myself. I know in an emergency I can rely on my credit facilities, business sales or assets. Or just borrow from a friend.... kidding.