Unit 2 · Level 1 · The emergency fund
How big is enough
The usual target is three to six months of essential spending. Essential means rent or mortgage, food, transport, utilities, insurance, childcare, minimum debt payments. It does not mean your salary, and it does not mean your normal lifestyle. If you lost your income tomorrow, the restaurant meals and the streaming bundles would go first anyway. Sizing the fund against income makes the target far bigger than it needs to be, and a target that feels impossible is a target nobody starts.
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What you get asked
Your take-home pay is €2,600 a month. Rent, food, transport, bills and insurance come to €1,700. Which figure do you size the fund against?
€1,700. The fund replaces the cost of keeping your life running, not the size of your payslip. That difference is €2,700 less to save for a three month buffer.
Your essential spending is €1,450 a month. You are self-employed with lumpy client income, so you target six months. How many euros is the full buffer?
€8,700. It is a large number, so treat it as a series of monthly steps rather than one wall. Even one month of essentials in cash removes most small emergencies.
Match each situation to where it pushes you inside the 3-6 month range
The question behind all four is the same: how likely is the income to stop, and how long would it take to replace? The harder that is, the more months you hold.
An emergency fund is measured in months of ___ spending, never in months of salary.
Write down your essentials once and the target stops being a guess. Most people find the real number is smaller than the one they feared.
Four people each spend €1,600 a month on essentials. Who has the strongest case for the largest buffer?
Same spending, very different income reliability. The buffer is sized by how fragile the income is, not by how large it is. 🐜
The rest of this unit
The cash buffer that has to exist before any market does, because it is what stops a bad month from becoming a forced sale.