Student Question of the Week: Emergency Fund

Student Question from Sophie L
Course: Fundamentals of Financial Planning

Student Question:

Hi Dan,

The adequate amount for an Emergency Fund is 3 months for married clients who both have substantial and reliable income. What is the generally accepted level, if any, for “substantial income”?

In Question 3, I considered that $60,000 per spouse was not substantial enough, so I went for 6 months whereas 3 months was the correct answer.


Instructor Response:

Hi Sophie!

That one is definitely a bit subjective.  Income of $60,000 per spouse SHOULD be more than substantial enough if they are living within their means.  For any scenario, if a couple or a person has monthly expenses that fit their income, they should be able to fit easily into the 3- and 6-month guidelines.  But in practice, this is a decision you can make with your client. You might want to suggest to a client, based on their spending, that they have a greater emergency fund. Of course, someone willing to increase an emergency fund is not likely someone who has spending issues.

For the CFP Board Exam, simply stick to the guidelines we list as the Board WILL test this area and WILL stick to the same guidelines we use.  So don’t make a judgment based on the actual salary numbers.  Just stick to the rules we listed.

Thanks for the question!