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El Cerebro

Saving and planning

Emergency fund

How much money it takes to keep set aside to sustain a number of months of expenses, and how much is left to get there.

What it does

It multiplies the monthly spending by the number of months of coverage you choose and gets the fund target. It compares that target with what you have already saved, says how much is missing, and turns that gap into a number of months at the monthly contribution you indicated, rounded up.

Key concepts

  • Fund target: monthly spending multiplied by months of coverage. It is the large figure of the calculator and the reference line on the chart.
  • Gap: the difference between the target and what you have already saved, never negative. Having a bigger buffer than planned is not a problem the account has to flag with a negative number.
  • Rounding up: months are a whole number because the money is either there or it is not. Rounding up avoids the half-way month, in which the account is one cent short of the target.
  • Buffer versus investment: the aim of this calculation is availability, not return. A buffer whose value may fall just when it is needed does not serve the purpose it is calculated for.

Frequently asked questions

How is the target calculated?

By multiplying the monthly spending by the number of months of coverage. With spending of 1.500 € a month and six months of coverage, the target is 9.000 €. It is a multiplication because an emergency buffer is not modelled: it is months of expenses.

What happens if I already have more money than the target?

The detail flags that nothing is missing and the months to complete it come out at zero. The calculator does not show a negative gap, because exceeding the target is not a flaw in the plan.

What happens if the monthly contribution is zero?

If money is still missing and there is no contribution, the account has no answer to return. Instead of inventing an enormous number or a misleading zero, the months to complete it are shown as infinite: it is never reached, and that is exactly the information that was missing.

Why are the months rounded up?

Because they are a whole number of months. If 1.200 € are missing and 500 € are contributed each month, the account gives 2,4 months, and in two months there is still no money there. The ceiling turns that fraction into 3 months, the first month in which the account is complete.

How many months of coverage are the right ones?

It depends on the household's fixed income, on how long it would take to change jobs and on the cost of starting over. The calculator does not have that figure: that is why the number of months is an input and not a fixed value written into the system.

What are months of coverage?

Months of coverage: the unit in which a safety buffer is measured. Expressing the target in months of spending makes it portable: it changes with your spending, not with the year.

Is the contribution invested while it accumulates?

No. This account only adds contributions on top of what has been saved, without applying any return. The aim is to have the money available; putting it into a market product would turn the buffer into a bet on the moment it is needed.

What limits do the fields accept?

Monthly spending runs from 0 to 100.000 €, months of coverage from 1 to 60, what you have already saved from 0 to 10.000.000 € and the monthly contribution from 0 to 100.000 €. An empty field does not equal zero: the calculator distinguishes between not filling it in and typing a 0.

How far does the chart go?

The savings line is drawn month by month until the target is completed, with a cap of 360 months. An infinite horizon cannot be drawn: with a minimal contribution and a high target, the series would be a file rather than a chart.

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