Recently, I’ve been thinking about how I written a lot about personal finance over the years. I just came back from a financial conference with thousands of people who produce tons of personal finance content (including video and podcasts) every day.

That’s a lot of talk… and as Aerosmith’s Steven Tyler says:

Talk is cheap, shut up and dance

So today, I’m going to channel my inner Suze Orman. I’m going to assign you homework. And you better do it!

Check your emergency fund. That’s it. If you don’t have one, today’s assignment is easy: START ONE

Don’t be worried if you don’t have one. Don’t even be worried if it isn’t much. I’ll let you on a tiny secret:

I am embarrassed by how small our emergency fund

I’ll get to those details on that in a bit… we have an unusual, complex situation.

First, I want to help you figure out your situation. Then, if you are still interested, you can get your voyeurism on and read about mine. But only if you finish your homework. If you don’t eat your meat, you can’t have any pudding. Sound good? Let’s go!

How to Calculate Your Emergency Fund

To put it simply, an emergency fund is how much money you have in cash divided by your monthly expenses. If you have $9,000 in cash and spend $3,000 a month, you have an emergency fund of 3 months (9000/3000 = 3).

It’s usually easy to figure out how much cash you have. You look at your bank account(s). It’s tougher to figure out how much you spend. Did you eat at too many restaurants too much this month? Did you have a minor car repair? Did you find a big sale on chicken?

Those links above were a test to see if you are getting distracted from the task. I hope you didn’t click on any of them. You can always read them when you’ve finished.

To make calculating expenses easy, I’m inventing my own rule of thumb. What did you expect from Lazy Man, right? On average housing and transportation are half of people’s expenses. You may not be average, but you’d probably know if you aren’t. Thus you can roughly add up your monthly house payment and car payment and double it. So if your rent/mortgage is $1500 a month and your car is $300 a month it would $1800 a month or doubled to $3600. (Doubling accounts for things like food, gas, utilities, coffee, food for your monkey butler… whatever it is.

While rules of thumb may not be accurate, this whole exercise is about creating an estimation. I’ve found that this is the best way to get it done quickly and easily. For me, it works better than getting bogged down in the details until…

Hopefully this rule of thumb can get you to an estimation in 5 minutes or less.

How Much Emergency Fund is Enough?

This is a question that is debated constantly. Most people say 3-6 months of your typical expenses. Some like more security and that’s okay too. Let’s aim for the 3-6 months, because many people don’t have that.

Also, you can always worry about “more security” after you have “security.”

Did your calculation give you more than 3 months? I hope so. If not, you may want to consider it as your next money goal.

Our Emergency Fund Situation

I can’t assign you homework that I wouldn’t do myself. So here’s a little analysis of our emergency fund. I’m not giving you all the numbers, but you might be able to estimate them from the context.

Our emergency is about 6-7 months, so it isn’t as small as I thought above. It is above average, but it feels small. That’s probably because it comes with a lot of “but”s. (I warned you it was complicated.)

Our expenses are very large between three rental properties (all at 15-year fixed mortgages), our own primary residence (same 15-year fixed mortgage), kids’ private school, and other stuff like food, transportation, utilities, etc. We are fortunate that those last three are limited. Our cars are paid off. I’m good at putting together cheap dinners (now is a good time to click on that chicken link above). Our paid-off solar panels eliminate our electric bills.

However, if we lost a tenant (or two), our emergency fund would drop quickly. In the above, I assume our renters all pay their rent. That’s a bad assumption for an emergency.

Also, our cash is split in a lot of different accounts. It feels less because I have to keep some money in certain accounts to keep them from getting overdrawn. There’s not just our personal accounts, but our joint account, the business account for this website, the business account from the rental properties. More than a month needs to sit there to avoid fees. I put that money in and try not to even think about it. In a true emergency, we can get at it, but it doesn’t feel the same as if we a big account with $40,000 in it.

Additionally, and fortunately, we have quite a few different income streams. The diversity of income is, in a way, its own emergency fund. If I’m fired from one job, I have 3 others. That’s why our emergency is complicated.

Extra Credit

If you’ve finished all that, I have some extra credit for you. Simply leave a comment below with at least 50 words about your emergency fund and/or thoughts on emergency funds in general.

I’ll put what I consider to be the best 5 comments in a virtual hat and pick a winner at random. What do the winner get? A $20 Amazon gift card.