Have you ever wondered how small or large your emergency funds should be? Well, it depends on your income.

When I was starting over from broke at age 50 and earning $5000 per month, I was saving 10% of my income. It took me 10 months to save up the equivalent of one month of income. (Only nine months if you subtract what I was saving.)

I was reading that the lower the income an individual or family has, the longer it takes to save up just one month of emergency funds. It makes sense because the lower a family’s income, the less disposable income there would be to set aside.

If the general advice is to have three months’ income set aside for an emergency, it would take a typical household that is earning $50-$70,000 per year over two years to save up one month’s worth of expenses. At this level, the income and the expenses are probably about the same.

At the household income level of $70-$100,000, it would only take seven to eight months to save one month’s worth of expenses. It took me ten months saving a full 10% of my income so I can confirm the accuracy of that article.

With a household income of more than $200,000, it would only take about two months to save up one month of expenses.

A study done by Pew Charitable Trusts in 2015 found the typical financial shock to the typical household (I don’t know what that was) amounted to $2000.

However, you may have heard the majority of the population only has about $400 in savings. So as little as that amount would be a serious blow to a low-income household if there is a job loss and rent was due.

If you have a choice of paying down a credit card versus a student loan, go for the credit card. If you need the money again, you can use the credit card. If you paid down the student debt, you cannot borrow back that money, it’s gone.

And, building the muscle of treating yourself like you matter by paying yourself first produces better long-term results than paying down credit cards. Becoming debt-free will NOT help you become financially free, or as I like to say; achieve Complete Financial Choice™.

Building assets that pay you an income when you no longer want to work, or cannot work, is how you achieve Complete Financial Choice™.

To Your Prosperity,

Rennie