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The emergency fund ratio indicates if you would have enough resources on hand in the event of an emergency.
Emergency fund ratio:
Monetary assets divided by monthly living expenses.
As a general rule, people should keep three to six months' worth of spending in their emergency fund. Add up your monthly necessary living costs, then multiply the total by three or six, depending on how much you feel safe having on hand in case of necessity.
- The emergency fund ratio, also known as the liquidity ratio, is a personal finance ratio that assesses a household's capacity to cover expenses from readily convertible assets.
- It is calculated by dividing the household's total liquid assets by its monthly costs as a whole.
- The ratio gauges how well-equipped a household is to handle a circumstance where there is a loss of income.
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