What is an Emergency Fund Ratio?

Emergency-Fund-RatioThe emergency fund ratio is also known as liquidity ratio is a personal finance ratio to measure the capability of a household to meet expenses from the liquid assets ( i.e., easily converted into cash).
The emergency fund ratio can be calculated by dividing the total assets ( liquid assets) with the total monthly household expense.
This ratio helps in calculating the backup plan of the household in times of loss of income or in times of economic misery.

How Much Money Should be Kept in an Emergency Fund?

Around 6 months of day to day expenses along with fixed expenses of about 1 year should be kept in an Emergency Fund for a good liquidity ratio.
However, an accurate Emergency Fund numbers of any household depend upon the numbers of earning members of a family, the ability to raise credit, and the stability of income.

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