We estimate the value of an appropriate emergency fund based on an assumption that your annual expenses are 80% of after-tax income and the average emergency fund is designed to cover 4.5 months of expenses (37.5% of annual expenses). The emergency fund is therefore equal to 30% of your annual after-tax income (80% x 37.5%).
We subtract your estimated emergency fund from your cash accounts first, and then any additional amount from your investment accounts. The remaining cash, if any, is considered excess cash.
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