An Emergency Fund is an essential part of a strong financial plan, especially while paying off debt rapidly. Dave Ramsey is famous for advocating for a $1,000 Starter Emergency Fund while paying off debt ($500 if you are very low income), but is that enough? We don’t think so. If you don’t feel that $1,000 is enough either, use this chart to determine how much you should keep in your Starter Emergency Fund Instead.

What is a Starter Emergency Fund?

An Emergency Fund is an amount of money you save up to use only for emergencies.

When paying off debt rapidly using Dave Ramsey’s method or your own debt payoff strategy, it’s smart to keep a Starter Emergency Fund on hand to help cover emergencies that may pop up while you are paying off debt in cash so you never have to rely on credit cards or loans ever again.

The idea of a Starter Emergency Fund is to save up the cash quickly though, and to move on to debt payoff as soon as possible. Later on, after you are debt-free, you will bulk up your Emergency Fund for the long-term into a Fully Funded Emergency Fund.

Simply put, your Starter Emergency Fund is just a small amount of money you save to tide you over and cover emergencies in cash while you are paying off debt. You don’t want to spend forever on this step because it can be a little bit of a drag to people still working on the discipline of saving, and moving on to paying off debt as soon as possible is great for keeping up the momentum on your financial journey.

Dave Ramsey recommends keeping $1,000 in your Starter Emergency Fund.

However, many money experts (myself included) have been suggesting that $1,000 is not enough for the Starter Emergency Fund.

After all, I can think of dozens of emergencies that could pop up during the debt-free journey that would cost more than $1,000, and I bet you can too.

• a trip to the ER with a sick kid
• a broken down car needing extensive repairs
• a house leak and needing new flooring
• a family member dying and needing plane tickets
• etc.

You get the picture.

Having said this, you don’t want to spend forever saving up your Emergency Fund and you don’t want to keep tens of thousands in your savings account collecting dust if you have big debt to pay off.

So if $1,000 is not enough, how do you determine what a good number for your Starter Emergency Fund is?

See the chart below for a quick way to calculate how much to keep in your Starter Emergency Fund instead of $1,000!

This is a very good guide, but it is not a definitive guide. You may want to add more or go with less depending on what your gut is telling you. I encourage you to follow your gut- no one knows your circumstances and comfort level better than you.

Keep This Amount in Your Starter Emergency Fund Instead. Start with a base of $1,000, and add more for each item you answer YES to.

DOES THIS APPLY TO YOU? IF YES, ADD THE SUGGESTED AMOUNT TO YOUR STARTER EF GOAL:	ADD THIS MUCH MORE TO YOUR STARTER EF:
There is more than 1 person in my household	$100 per person
I have pets	$100 per pet
I have high deductible health insurance	$500 or the amount of your deductible
At least one person in my family is in poor health or has a health condition that requires regular care/prescriptions	$500
I have at least 1 vehicle older than 7 years old	$500
I own my home, and it is older than 10 years	$500
My family is reliant on 1 main income	$500
My job security is poor	$500
It will take me longer than 2 years to pay off my debt (not sure?)	$200
I don’t use sinking funds	$100

This chart will help you determine a good amount of money to keep in your Starter Emergency Fund if you don’t feel that $1,000 is enough, but you should always follow your gut. If you feel that less would work, go with less. If you would feel a lot more secure and comfortable with more, go with more!

Next, I will walk you through some examples of how to use the chart above to determine how much to keep in your Starter Emergency Fund.

Example 1 of a Starter Emergency Fund Calculation using the chart above:

Let’s walk through an example of determining how much to keep in your Starter Emergency Fund using the chart above.

Sarah has $200 in savings, a family income of $85,000/yr, and $60,000 of debt to pay off. She is frustrated and scared about her situation, and ready to make a change.

She decides to pay off her debt as quickly as possible, and the first step is saving up a Starter Emergency Fund.

Sarah will start with a savings goal of $1,000. Then, she will add $400 (4 people in her household). She has one dog, so she will add $100. They have poor health insurance, so a simple ER visit for a broken arm could cost them a lot. Their health insurance deductible is $2000, so she decides to make sure they have at least that much in savings to cover a medical emergency in cash. She will add $500 because of the high deductible insurance, carefully ensuring that the total of their Starter Emergency Fund is at least $2000. Sarah’s whole family is in good health. Both their cars are 3-4 years old. They do own a home that is 13 years old, so she will add $500. Although their job security is good, they rely on her husband’s income alone, so she adds $500 because of this. She thinks they can have all their debt paid off in 18 months. She doesn’t use any sinking funds, so she adds $100 because of this.

$1,000 + $400 + $100 + $500 + $500 + $500 +$100 = $3,100

The total amount Sarah decides to keep in her Starter Emergency Fund is $3,100. This is not so much money that it will takes her months and months to save up. In fact, she should be able to save this in less than 2 months. It’s also more than her high insurance deductible of $2,000, so if a medical emergency happens, she will have the cash to cover it.

Example 2 of a Starter Emergency Fund Calculation using the chart above:

Lucas has $20,000 in savings, a family income of $78,000/yr, and $100,000 of debt to pay off.

He decides to pay off his family debt as quickly as possible, and saving up a Starter Emergency Fund is the first step. He already has $20,000 saved, but he doesn’t think that $1,000 is enough. He isn’t sure whether to pay off some debt with his $20,000 savings, or keep it.

To determine how much to keep in his Starter Emergency Fund and how much of his savings he can use to pay off debt, he uses the chart above.

Lucas starts with a $1,000 savings goal. He doesn’t have any kids, but he is married, so he adds $200 for the 2 people in his household. He also has 2 cats, and they are older so he adds $200 for them. They have great health insurance with low deductibles. Lucas and his partner are in great health. They only have one car and it is 10 years old, so they add $500 for that. They live in a rented condo and are not responsible for repair costs, as the landlord takes care of those. They both work, so they have 2 incomes, and both have good job security. However, Lucas thinks it will take them 3 years to pay off their debt, so he adds $200 because of that. He has sinking funds for a vacation, birthdays, and Christmas, so no emergencies will pop up there.

$1,000 + $200 + $200 + 500 + $200 = $2,100

The chart determines $2,100 would be a better amount for Lucas to keep in his Starter Emergency Fund, but he would feel more comfortable with more, so he listens to his intuition and comfort level and decides to save $2,500. He already had $20,000 in savings, so he decides to take $17,500 of his savings and pay down debt with it!

This reduces his debt from $100,000 down to $82,500, and he still has $2,500 in savings for emergencies. He’s excited about his debt payoff and feeling motivated to keep it going rapidly.

Fully Funded Emergency Fund

The idea is that your Starter Emergency Fund will help you cover emergencies while you are working on debt payoff. After you become debt-free and are ready to move on to saving, investing, and other steps in the financial journey, it’s time to make sure you have a Fully Funded Emergency Fund.

Most money experts suggest you keep 3-6 months worth of expenses saved in your Fully Funded Emergency Fund.

This number will be different for everyone because it is based on your family’s unique expenses.

If your monthly expenses are $6,000/mo, your Fully Funded Emergency Fund should be around $18,000-$36,000.

However, some people prefer to keep more, and I have seen very reputable money experts suggest you keep 6-12 months of cash on hand.

This really depends on your situation, and I urge you to be very thoughtful when making this decision and to not necessarily follow the masses.

While keeping lots of cash on hand may sound like security to some, to others, it’s less secure. That’s because cash is experiencing an average inflation amount of 2% per year, meaning the tens of thousands sitting in your bank account are losing value every day. Many agree that keeping too much cash on hand causes it to succumb to inflation when it could be growing in investments elsewhere.

If you want to have a really healthy Fully Funded Emergency Fund but you don’t want tons of cash sitting on hand losing value to inflation and you’d rather have it working for you, keep 3-6 months of expenses in cash and put the rest into investments.

This is my personal opinion if I were talking to a friend and what I personally do: I recommend keeping 3-6 months worth of expenses on hand as your Fully Funded Emergency Fund, and then investing the rest. If you feel secure with more money available (because perhaps your job is at risk or you have poor health), consider keeping an additional 3-6 months worth of expenses in an investment that is growing but is still easy to liquidate (i.e. not a retirement account, but a regular brokerage account you can access at any time). This way in a true emergency you’d have access to 6-12 months worth of expenses.

I wouldn’t keep more cash than this on hand unless you are saving up for a house downpayment, an investment, a baby, or something else (and in this case it’s not an Emergency Fund, this should be a separate savings fund entirely anyway).

Did this article help you determine how much to keep in your Starter Emergency Fund? Is $1,000 enough for your Starter Emergency Fund or are you going for more? Let me know in the comments!

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