How Do I Determine the Size of My Emergency Fund?

Rachel asks how to determine expenses in order to save for the emergency fund.

QUESTION: Rachel on Facebook asks how to determine expenses in order to save for the emergency fund.

ANSWER: No, I think it’s what it takes—your basics—to run your life. You wouldn’t have a Caribbean vacation figured into your expenses for emergency purposes, but you would want to maintain your life.

The whole idea here is to have a rainy day fund. What does it take to operate your household right now in a given month? And if you were out of a job or something bad happened, what would it take to operate your household? It’s more than just the Four Walls. You wouldn’t want to take it all the way down to just base necessities, but it doesn’t have a bunch of luxuries in it either, so somewhere in between those. It’s just kind of a medium ground and then that times three months or up to six months of those expenses.