Do you need a reserve fund?
How this calculator works: Part 1
This part of the Income-Reserves calculator helps you decide whether you need a reserve fund to protect your income. Answer questions to the left, using the points below for guidance.
Your Income. Questions 1-3 concern your net income. How much do you earn from working, and how much (if any) from other sources? Do you normally save some of this income? Note that for take-home pay, you will have to multiply your net pay-check by 12 if you are paid monthly, by 26 if you are paid biweekly, and by some other factor if you are paid differently (e.g., on an academic calendar). The calculator assumes that your reserve fund is mainly intended to protect the income you get from working. Income from other, non-work sources may reduce your need for a reserve fund, and in an emergency you could suspend new savings to help cover your basic expenses.
Your Needs. Questions 4 and 5 help estimate the expenses your reserve fund would have to cover. One factor is the amount by which you might be able to cut your current spending. Another factor is the size of deductibles in your medical, home, auto and other insurance policies. Large deductibles are often a good strategy for controlling insurance costs. But your reserve fund should cover them.
Potential Resources. In some cases, alternate resources may be available that will reduce your need for a new or additional reserve fund. These may include reserves you have already saved, unemployment benefits in your state, or retirement savings if you are older than 59.5 years. Questions 6-9 assess these possibilities.
Estimates. After answering the questions, click the Start button to see the recommendations that best fit your circumstances. If you wish, try answering some questions differently, and click the Start button again to see how the results may change.
When reviewing the results, bear in mind the following FAQs:
How should you invest your reserves?
How this calculator works: Part 2
This part of the calculator recommends how to invest your reserve fund. Consider the questions below. Then answer them to the left.
The predicted return shows how much your investments may gain per year, on average, based on historical data since 1871, after taking into account whether U.S. stock-prices are currently over-valued or under-valued. To learn more, read Finding Value.
Taxes could reduce your actual net gain; the future may depart from historical trends; and market changes could cause your results to differ, up or down. You could lose money. Even low-risk investments like T-Bills, bank savings, and money market funds can lose buying power when interest rates are very low or inflation runs higher than expected.
For more information on how to apply the recommendations made by our calculators ...
- Read Using Our Calculators for tips and FAQs.
- Use the Investing, Goals, or Retirement menu at the top of this page, to find helpful articles.
Note: This calculator was most recently updated on January 8, 2017, with current inflation rates and long-term value-adjustments. (See our article Finding Value for details.)