A good emergency fund calculator allows users to identify how much money they should save for emergency situations.
It takes into account the type of income you have, as well as your personal spending habits.
This helps provide a more accurate assessment of the amount of funds that should be allocated to an emergency fund.
Below I detail one of the most important factors as well as detailing how our emergency fund optimization calculator at FitBUX incorporates your behavior and personal situation as an example. It is important to know these factors before building your emergency fund.
Why is Human Capital Important?
Human capital is one of the more important measurements in terms of deciding just how many months you’d want in your emergency fund.
Human capital is essentially the value of an individual’s labor as earning power. This can be influenced by many factors, including current and past salary information, health, age, job market conditions and more.
Professions such as a Physical Therapist, Nurse, Doctors, etc. all have very stable income and can get a job pretty much whenever they want. This means that they could have relatively lower amount in their emergency fund because they don’t have to worry about unemployment.
On the other hand, if you’re in commission based profession for example real estate, you’d probably want a little bit more in that emergency fund because there’s more uncertainty on a month to month basis regarding your income.
Another example is a travel physical therapist. You’ll be making more income through the stipend but on the other hand you don’t know how long it could be between contracts you take or the cost of living in a new city every couple of months.
In those cases, it might make sense to have a larger emergency fund so that you can still cover your bills and living expenses if your primary source of income isn’t coming through.
An Example Of An Emergency Fund Calculator
At FitBUX, our financial planning technology automatically takes into account your human capital and your behavior. Therefore, all you have to do is make sure your profile accurately reflects you background and experiences.
We make sure to also factor in any chronic or recurrent conditions that may affect your level of income, so that you can account for them in the long run.
It is extremely hard to do this with generic calculators because you have to incorporate so many different data points. However, if you are using a typical emergency fund calculator that only factors in your expenses, be sure to think about how your profession as well as your behavior factors into the output.
At the end of the day, no matter what, you should have enough saved that makes you feel comfortable.
What’s Next?
If you need more help deciding how much you should save, we’d be happy to help. If you’d like to speak to a FitBUX coach to get tailored advice, sign up for our membership and schedule a call with us and from there you’d be able to use our one-of-a-kind financial planning technology and get a plan implemented along with seeing exactly how much you’d need in your emergency fund.
By David Hughes and Joseph Reinke, CFA
