Step 7: Save a 6-Month Emergency Fund
Phase 2: Build a Routine · Step 7 of 12
Turn a cushion into a moat.
In short
Grow your emergency fund to six months of Recurring Expenses plus Personal Spending. Recalculate first, because your budget has changed since Step 3. And hold your lifestyle steady while you build it, so raises go to the fund instead of new spending.
Why this comes now
One month covers a car repair. Six months covers a job loss or a long illness without new debt. It protects everything you've built so far, and it makes the long payoff in Step 8 safe to start.
How to do it
- Redo your Undetailed Budget, then add Recurring Expenses and Personal Spending. Multiply by six and round up.
- Subtract what's already in your emergency fund. That's the goal for this step.
- Send the whole surplus to the fund each month, plus raises, refunds and bonuses.
- Talk it over together: keep spending where it is and finish sooner, or loosen up a little and take longer. Either works if you both agree.
Example Family: Alex and Jordan
One month now costs $4,000 ($2,000 Recurring Expenses + $2,000 Personal Spending). Six months is $24,000, so they round up to $25,000. They already have $4,500 and need $20,500 more. At $600 a month that's nearly three years, but raises, refunds and bonuses all go to the fund, so it takes closer to two.
Examples are hypothetical.
You're done when
Your emergency fund holds six months of Recurring Expenses plus Personal Spending.
Your next step
For education only. Not individual financial, tax or legal advice.