Emergency Fund Calculator: How Much Money Do You Really Need To Save?

Updated: April 25, 2021

How much money should you save as your emergency fund? The simplest and most basic answer is 6 months worth of your income.

The rationale behind this figure is because it normally takes around 6 months to look for new work in the unfortunate event that you lose your job.

But of course, not everyone is an employee, and sometimes, looking for a new job can take longer, especially if you’re in a competitive industry.

So what’s a more accurate way to calculate your emergency fund? The answer is that you really need to go personal on your personal finance.

Start With Your Monthly Expenses (ME)

How much do you spend each month? If you don’t know the answer, then it’s time for you to start tracking your expenses.

List down and sum up your monthly mortgage and debt payments, utility bills, food and grocery expenses, insurance premiums, transportation expenses, and a prudent budget for discretionary spending (entertainment).

We will call this amount ME (monthly expenses).

Know Your Income Margin (IM)

If you’re an employee, then you theoretically receive the same fixed amount every month as your salary. This means your income margin is zero.

But if you’re self-employed, or a freelancer, then there will certainly be good months and lean months. The same goes for entrepreneurs or business owners.

To calculate your IM (income margin), subtract your lowest monthly income from your highest monthly income for the past year.

For example, if the highest income you received in a month for the past year was P25,000 and the lowest was P18,000 then your income margin (IM) is P7,000.


Calculate Your Income Handicap (IH)

Your income handicap (IH) is a factor that relates to your ability to find a new source of income if ever you lose your current one.

For employees, this means how long you can find a new job. For freelancers, this relates to how long you can find a new client if your biggest one leaves.

And for entrepreneurs, it can be how fast you can start a new business if you decide to close your current one.

Unfortunately, there is no exact formula to calculate your income handicap. But you can start by taking half of the number of years you’ve been working at your job, you’ve had your biggest client, or the years you’ve been running your business.

If you’ve been employed at your current job for four years, then your IH is equal to 2. If your biggest client has been with you for a year, then your IH is 0.5. Your business has been running for 6 years? Your IH is 3.

The rationale used here is that the longer you’ve been working at your current job, then the harder it will be for you to find a new job – because you’re older and your skills are not as competitive as before.

The same goes for freelancers, who tend to become dependent on big clients; and entrepreneurs, whose start-up skills become rusty when they focus their energies on growing their venture.

Factor Possible Emergencies (PE)

Illnesses, especially medical emergencies can leave you broke. That’s why it’s necessary to have health insurance coverage. But not only that, there will always be unexpected expenses that could arise anytime like necessary car and house repairs.

There’s no substitute for having health insurance and you should really get one. As for car and home repairs, assess possible financial emergencies that could happen under their current conditions.

For example, if your car is showing signs of distress, then note that it could break down soon. Or if you live in a flood-prone area, then calculate the financial implication if a typhoon disaster happens.

Determine the amount you’ll need to cover such possible emergencies (PE).

Having a hard time calculating? Then just ask the nearest hospital how much an appendectomy would cost then add to that the cost of four brand new tires for your car (if you have one). That’s a good estimate amount you can use for PE.

How To Calculate Your Emergency Fund

The formula to compute your emergency fund is:

Emergency Fund = (ME x 6) + (IM x 3) + (ME x IH) + PE

Roughly, this is six months worth of your monthly expenses, plus three months worth of your income margin (to cover lean months), plus several months worth of your monthly expenses with respect to your income handicap, plus extra fund for possible emergencies.

Example 1:
Pedro is an office employee who spends around P18,000 a month. He’s been working at his current company for six years. He has full health insurance coverage and owns a second-hand car.

ME = 18,000
IM = 0 (he is an employee)
IH = 3
PE = 16,000 (cost of four brand new tires for his car)

Following the formula, his emergency fund should be around P178,000.

Example 2:
Maria is a freelance writer that earns P12,000 to P20,000 a month. Her biggest client is a magazine where she’s been contributing articles for two years now. She has no health insurance and doesn’t own a car. Her monthly expenses range from P10,000 to P15,000 a month.

ME = 12,500 (average monthly expense)
IM = 8,000
IH = 1
PE = P100,000 (total cost of an appendectomy in the nearest hospital)

Again, by following the formula, her emergency fund should be around P195,500.

In Conclusion

Did you notice how the lack of health insurance has greatly affected Maria’s emergency fund requirements? If she had medical coverage, her emergency fund would need to be just around P95,500.

Furthermore, for Pedro in the first example, notice how car ownership required him to have more money in his emergency fund. Sure, he can disregard car expenses in his calculations, but only if he can honestly say that he can live without a car.

The given formula is one that I personally follow. It was designed from personal experience which has served me well for the past several years.

However, if you believe that the resulting sum is too high (or too low) for you, then I encourage you to devise your own formula that’s better customized to your situation.

If you’re married with kids and your parents are dependent on you – then the formula above would definitely fall short of what’s necessary.

Because again, personal finance is a personal matter; and nobody knows what’s best for you than yourself.

Lastly, remember that your emergency fund is your SWAN Fund – that’s extra money which allows you to Sleep-Well-At-Night.

So always make sure you have enough, and I can guarantee that you’ll survive life’s toughest financial challenges.

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Photo credit: taxcredits


  1. I’m a strong believer of the EF or SWAN fund. I was once the kind of person who think i can handle any emergency with “plastic” until one glaring mishap. Then ther’s also the time when i was able to maximize my EF for a family member that passed away. It’s really a necessity for me. That’s why i’m still fortifying my own EF, i’m not sure about this but i think Some extra cushion would be better.


  2. Thanks for a very nice article. I have been saving up for my emergency fund but two successive hospitalization drained up my savings. I have a health card but it did not cover a specific procedure which they call new modality. I was hospitalized May. My husband who drives a taxi doesn’t have a health card. He had stroke the following month.

    I got him an health insurance on September so all his checkups now are covered. Now I am contemplating if I should also get the same coverage for my 2 kids (ages 11 & 13). Currently they have this card that is only used for consultation. My first born have used it quite often last year because of enlarged tonsils. If her condition does not improve (which so far has improved since we imposed food restrictions on her), she might undergo tonsils removal. The price for the card is quite expensive (13,500/year). Should I also get the kids covered or should i just save this amount for emergency? The second one has always been my preference for the previous years.

    Appreciate your advise. More power!

  3. nice blog…I agree. thanks..

    needs to include contingency, escalation, tuition fees,…to have a safer EF.

  4. Some experts are saying that the monthly expenses should be multiplied to the Unemployment rate of the country. In our case, it’s about 7 months (from 7.4% unemployment rate in Php) instead of the usual 6 months recommended above.

  5. I never thought calculating an emergency fund can be this long. Before, I only think that having some six months worth of monthly income would be fine. You included some other factors here that should be taken into consideration.

  6. Hi! Fitz, If you are an OFW with your family with you abroad, where will you base your computation of the ME & PE for the emergency fund, Is it in the Phils. or where you’re currently home? I’m confused please help.

  7. Hi MC. Compute everything based on where you are first – your personal ME and PE. Then compute the amount based on the needs of your family in the PH – that is their ME and PE. Your emergency fund, as the breadwinner, will be the total of the two.

  8. sir fitz, clarification lang po… how about po sa mga seaman, in the computation for the IM, at the lean months technically we have zero (0) income.. so our IM is automatically yung sweldo po ba nmin? maraming salamat po sir^^

  9. OFW’s should also include in their emergency fund the cost of one way airfare from their country of work to the Philippines. If you have your family members with you abroad, and depending on the nation where you are in, then;

    No. of Family members x Airfare/Visa/Border-crossing cost = EAF or Emergency Airfare Fund

  10. I always have one principle – “Save Until It Hurts” As an OFW, I use my mobile app to track my expenses and figure out the amount to be saved each month. We all have a monster inside that would ask us to overspend, so don’t give in. Saving of at least 10% of my income is not so effective for me, so I made that 40%.

    Don’t envy your friends who are chilling at Starbucks. Focus on your goal and have a mindset of delayed gratification. Trust me, your savings will be your new best friend.

  11. Cash can be considered an investment at times. I have a dislike for uninvested cash just sitting around even as I made the decision to boost my cash in hand after a number to covid-19 related emergencies. We keep more cash in the home these days and a larger amount spread among several local banks in the event one is off-line, a frequent happening in our area.

    Maybe this is the wrong approach but I generally have significant cash in my ROTH retirement account. If no trade appeals to me, the cash sits in a sweep fund earning a small amount of interest. When an oppertunity appears that I like, I generally begin a position by writing cash secured put options below the current market. At expiration time for the options, if the market has dropped to my short strike price or lower, I may get assigned stock or an ETF if that was what I sold the put to obtain. This cash reserve also has functioned as my emergency fund. I simple transfer money out of my IRA and into the account my VISA card is linked to.

    If needed, I could buy back short option positions and that would free up cash but take an additional day (T +1). If something really bad occurred, we could also sell stock. Again, before I could remove the funds, it will be T+2 trading days for the funds to clear. The ” art & science” of this is to have more than enough cash at home and in local banks to tide us over until additional funds can be freed up and transferred. Unconventional yes but so far it has worked. I do need, as I mentioned above, to boost local and home cash reserves based on what we experienced during various lockdowns.

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