Emergency Fund – DEV (fm-finance)

1 Book Topics

What it is: cash set aside for the unexpected so you never reach for credit; the target is 3 to 6 months of essential expenses, and it is Step 4 of the Financial Order of Operations
Why it matters: most derailments start with one surprise bill charged at 20 to 24% interest; Housel frames the fund as buying options, not earning a return
Essential expenses baseline: housing, groceries, utilities, transportation, health, and minimum debt payments; dining out and subscriptions do not count
Adjusting for risk: stable income with good coverage needs 3 to 4 months; dependents need 6 minimum; variable or self-employed income leans toward 6 to 9
Starter fund first: build $1,000, clear high-interest debt, then fill the full 3 to 6 month fund
Where to keep it: a high-yield savings account, money market fund, or insured credit union; not checking, stocks, long-term CDs, or cash at home
Why not the stock market: job losses and market drops tend to arrive together; Felix treats the fund as a hedge on human capital
Building it: 12 to 24 months is typical; doubling the contribution roughly halves the time; automate a payday transfer and find money in small cuts
Rebuilding: a withdrawal is the fund doing its job; resume contributions immediately without pausing retirement savings
Emergency fund math: target amount, months to reach the target, contribution needed by a deadline, and what the fund earns while you build it

2 Your Target Amount

Your target is your essential monthly expenses multiplied by the number of months you want to cover. Each extra month adds one more block of expenses.

Formula: Target = Monthly Essential Expenses × Months of Coverage

Book example: $3,500/month in essential expenses × 4 months = $14,000. The 3 and 6 month targets are $10,500 and $21,000.

Emergency fund target at $3,500/month essential expenses

2.1 Level 1: Guided

Fill in the blanks to finish emergency_fund_target(), then find the target for $3,500 of essential expenses and 4 months of coverage.

Put essential expenses in A2 (3500) and months in B2 (4). Find the target in C2.

Solution

=A2 * B2

This returns $14,000.

2.2 Level 2: Practice

Build the essential expenses from the book’s baseline (housing $1,600, groceries $550, utilities $300, transportation $600, health $250, minimum debt payments $200), then find a 6-month target.

Put the categories in A2:A7 and amounts in B2:B7. Find the 6-month target in one formula.

Solution

=SUM(B2:B7) * 6

Essentials total $3,500, so the target is $21,000.

2.3 Level 3: Challenge

Risk sets the months: stable income needs 4, dependents need 6, and self-employed income needs 9. Find the target for each household below.

Household	Essentials	Situation
A	$2,500	Stable
B	$3,500	Dependents
C	$5,000	Self-employed

Put essentials in B2:B4 and the situation in C2:C4. Find each target in D.

Solution

In D2, then fill down:

=B2 * SWITCH(C2, "Stable", 4, "Dependents", 6, "Self-employed", 9)

The targets are $10,000, $21,000, and $45,000.

households["months"] = households["situation"].map({"Stable": 4, "Dependents": 6, "Self-employed": 9})
households["target"] = emergency_fund_target(households["essentials"], households["months"])
households["target"].tolist()

households |>
  mutate(
    months = case_when(
      situation == "Stable" ~ 4,
      situation == "Dependents" ~ 6,
      situation == "Self-employed" ~ 9
    ),
    target = emergency_fund_target(essentials, months)
  ) |>
  pull(target)

3 Months to Reach Your Target

Given your current balance and a monthly contribution, how long until you reach the target? Part of the target bar is already filled; the monthly contributions close the gap.

Formula: Months to Goal = (Target − Current Balance) ÷ Monthly Contribution

Book example: a $14,000 target with $2,000 saved and $500/month takes (14,000 − 2,000) ÷ 500 = 24 months.

A $14,000 target with $2,000 saved: the $12,000 gap, filled $500 at a time

3.1 Level 1: Guided

Fill in the blanks to finish months_to_ef_goal(), then find how long it takes to reach $14,000 with $2,000 saved and $500 a month.

Put the target in A2 (14000), the balance in B2 (2000), and the contribution in C2 (500). Find the whole months in D2.

Solution

=ROUNDUP(MAX(0, A2 - B2) / C2, 0)

This returns 24.

import math
def months_to_ef_goal(target, current_balance, monthly_contribution):
    remaining = max(0, target - current_balance)
    return math.ceil(remaining / monthly_contribution)

months_to_ef_goal(14000, 2000, 500)

months_to_ef_goal <- function(target, current_balance, monthly_contribution) {
  remaining <- max(0, target - current_balance)
  ceiling(remaining / monthly_contribution)
}
months_to_ef_goal(14000, 2000, 500)

3.2 Level 2: Practice

Double the contribution to $1,000 a month. How many months now?

Change C2 to 1000.

Solution

The same formula returns 12. Doubling the contribution halves the wait.

3.3 Level 3: Challenge

You want the $14,000 fund done in 18 months or less, starting from $2,000. Contributions come in $50 steps from $300 to $1,000. What is the smallest one that finishes in time?

Put $300 to $1,000 in steps of 50 in A5:A19, the months for each in B5:B19, and find the smallest contribution that takes 18 months or less.

Solution

In B5, filled down: =ROUNDUP((14000-2000)/A5, 0). Then:

=MINIFS(A5:A19, B5:B19, "<=18")

The answer is $700 (18 months; $650 takes 19).

4 Contribution Needed by a Deadline

Working backwards: to reach the target by a set month, how much do you need to save each month? The number of slices is fixed, and the question is how wide each slice must be.

Formula: Monthly Contribution = (Target − Current Balance) ÷ Months Remaining

Book example: a $14,000 fund in 18 months with $2,000 saved needs (14,000 − 2,000) ÷ 18 = $667/month.

The same $12,000 gap, cut into 18 equal monthly slices

4.1 Level 1: Guided

Fill in the blanks to finish monthly_contribution_needed(), then find the monthly amount to build $14,000 in 18 months with $2,000 saved.

Put the target in A2 (14000), the balance in B2 (2000), and the months in C2 (18). Find the monthly amount in D2, rounded up to the dollar.

Solution

=ROUNDUP(MAX(0, A2 - B2) / C2, 0)

This returns $667.

import math
def monthly_contribution_needed(target, current_balance, months):
    remaining = max(0, target - current_balance)
    return math.ceil(remaining / months)

monthly_contribution_needed(14000, 2000, 18)

monthly_contribution_needed <- function(target, current_balance, months) {
  remaining <- max(0, target - current_balance)
  ceiling(remaining / months)
}
monthly_contribution_needed(14000, 2000, 18)

4.2 Level 2: Practice

$667 doesn’t fit the budget. Stretch the deadline to 24 months. What is the monthly amount now?

Change C2 to 24.

Solution

The same formula returns $500.

4.3 Level 3: Challenge

The fund sits in a 4.5% high-yield account while you build it, so interest does some of the work. Write contribution_with_interest(target, current_balance, annual_rate, months) and find the monthly amount to reach $14,000 in 18 months from $2,000. The formula is (Target − Balance × (1 + r)^n) × r ÷ ((1 + r)^n − 1), with r = annual rate ÷ 12.

Find the monthly amount in one formula.

Solution

=PMT(4.5%/12, 18, -2000, 14000)

This returns about $638.17, about $29 a month less than ignoring interest. (Excel shows it as negative because it is money leaving your pocket.)

def contribution_with_interest(target, current_balance, annual_rate, months):
    monthly_rate = annual_rate / 12
    growth = (1 + monthly_rate) ** months
    return (target - current_balance * growth) * monthly_rate / (growth - 1)

contribution_with_interest(14000, 2000, 0.045, 18)

contribution_with_interest <- function(target, current_balance, annual_rate, months) {
  monthly_rate <- annual_rate / 12
  growth <- (1 + monthly_rate)^months
  (target - current_balance * growth) * monthly_rate / (growth - 1)
}
contribution_with_interest(14000, 2000, 0.045, 18)

5 What the Fund Earns While You Build It

A fund in a high-yield savings account earns interest. It will not change your timeline much, but it is real money. Each month the balance is multiplied by (1 + the monthly rate).

Formula: Future Value = Balance × (1 + monthly rate)^months, where monthly rate = annual rate ÷ 12

Book example: $14,000 at 4.5%, untouched for 12 months, grows to about $14,643.

$14,000 at 4.5% for 12 months: your balance plus interest

5.1 Level 1: Guided

Fill in the blanks to finish ef_growth(), then find what $14,000 grows to in 12 months at 4.5%.

Put the balance in A2 (14000), the rate in B2 (0.045), and months in C2 (12). Find the balance in D2.

Solution

=A2*(1+B2/12)^C2

This returns $14,643.16.

5.2 Level 2: Practice

A big bank savings account pays 0.01%. Over 12 months, how much more interest does the 4.5% high-yield account earn on $14,000?

Find both interest amounts and the difference.

Solution

=(14000*(1+4.5%/12)^12 - 14000) - (14000*(1+0.01%/12)^12 - 14000)

This returns about $641.76. The big bank pays about $1.40.

5.3 Level 3: Challenge

A surprise $300 car repair is coming. At 4.5%, after how many whole months has the $14,000 fund earned at least $300 of interest?

Put months 1 to 24 in A5:A28, find the interest at each month in B, then find the first month at or above $300.

Solution

In B5, filled down: =14000*(1+4.5%/12)^A5 - 14000. Then:

=MATCH(TRUE, B5:B28>=300, 0)

The answer is 6 months.