Emergency Funds will be different for each person.
What are Emergency Funds really.
They are in case of an emergency obviously but so are Insurance policies.
That makes any insurance you have part of your emergency funds.
When Emergency Funds are calculated you need to look at your list of savings and expenses.
The list should then be checked for items that could create emergencies.
Here are some instances to check out.
Rent could be considered a minor emergency if you’re always struggling at the end of the month. If you can’t pay the rent you will be in a bad position.
If you have a car and no savings for a new one and your car is in an accident and you don’t have replacement insurance, you’re in trouble. If you have replacement insurance then you’re likely ok.
Wherever you live, you will need some homeowner’s insurance in case of theft or natural causes. If you don’t insurance and you are burglarized then you’re in trouble. If you have insurance, then you’re ok.
Most medical and dental insurance policies cover only part of the expenses. If you have a major medical or dental problem it could cost you a lot. If you don’t have medical and dental insurance you won’t be ok. If you have the insurance you might be ok or you might not.
Such things as groceries, clothes, entertainment are not generally covered by insurance unless a thief breaks in and steals your household items. That however, means that you will have to make a claim and then wait for the insurance check to come in then start shopping to find replacement. If you're living paycheck to paycheck it will be hard to cover off the missing items when you need them. An Emergency fund would cover it until the check came in.
If you do pay for the emergency, then other parts of your budget will have to suffer. You might have to scrimp or go without entertainment or you might have to use your credit card. All of those choices will negatively impact your lifestyle and your budget.
The way around this is to look at all of your savings and costs and figure out how well any insurance covers you. Then you have to look at all of your savings and expenses that aren’t covered by insurance and decide how much you like to do those things each month.
Then you have to put a dollar value on everything by figuring out how much each item costs to replace it or how much it costs to pay for things over a few months.
In the end, it has been calculated that 3-6 months salary is a reasonable amount of funds to have aside for emergencies.