Question

If the Potinsky household spends ​$39,300 annually on all living expenses and​ long-term debt, calculate the amount recommended for an emergency fund. How might household circumstances​ (e.g., wage earners in the​ household, available​ credit, and type and stability of​ employment) affect this​ decision?

The emergency fund amount would range from

​$

to

​$

​(Round to the nearest dollar and enter the range from lowest to​ highest.)

Answer 1

Monthly Living Expenses = Annual Expenses / 12

= $39,300 / 12 = $3,275

According to common practice, an emergency fund should equal approximately 3 to 6 months’ living expenses.

So, the emergency fund should range between $9,825 to $19,650

To avoid having a large sum in aliquid account earning little interest, they should have some funds available, with the remainder invested with higher earnings. In case of an emergency, they coulduse credit immediately and then liquidate other assets to repay the bill assuming all accounts are not charged to the limit.