Question

2020 Personal Financial Data for Married Couple, Zach and Carly
	Zach	Carly	Joint	Total
Annual Income (gross)	111,000	78,000
401(k) contribution (annual)	18,000	3900
401(k) maximum employer match ($1 per $1 employee contribution)	4%	5%
401(k) balance (including above contributions)	98,000	47,250
401(k) balance (beginning of year)	78,000	35,000
Monthly housing costs			2950
Other monthly debt payments	1350	950
Total monthly non-discretionary cash flows	3000	2200	2950	8150
Cash & cash equivalents	20000	12000
Total debt	55000	35000	200000	290000
Total assets	152000	94000	275000	521000
Note: Data items are from end of year, except where specified otherwise.

3. What is the calculated couple's emergency fund ratio in months (rounded to three decimal places)?

Answer 1

Emergency ratio measures the preparedness of the household to manage a situation of loss in income.

It is calculated = Total Liquid assets / Total monthly expenses

= 32000/15225 = 2.102 months

Total monthly expenses of couple are

Particulars	Zach	Carly	Joint	Total $
Monthly housing cost			2950	2950
Other monthly debt payments	1350	950		2300
Total monthly non-discretionary cash flows	3000	2200	2950	8150
401 K contirbution monthly	1500	325		1825
	(18000/12)	(3900/12)
Total Monthly expense of couple				15225

Total liquid assets of couple are

Cash and cash equivalent = 20000+12000=32000

Note that we are not considering 401K contribution as liquid asset hence not considered as it is a retirement saving and can be withdrawn after a certain age.