A couple has monthly take-home pay of $8,000. Their non-discretionary expenses are $5,500, and discretionary expenses are $1,500. They have no current emergency fund. Considering their stable employment and a desire for conservative planning, what would be an appropriate emergency fund target, and what proportion of their income should they aim to save monthly to reach it within a year?

Question: A couple has monthly take-home pay of $8,000. Their non-discretionary expenses are $5,500, and discretionary expenses are $1,500. They have no current emergency fund. Considering their stable employment and a desire for conservative planning, what would be an appropriate emergency fund target, and what proportion of their income should they aim to save monthly to reach it within a year?

Answer options: ✅ Target: $22,000; Monthly Savings: $1,833.33

• Target: $33,000; Monthly Savings: $2,750.00
• Target: $22,000; Monthly Savings: $1,375.00
• Target: $16,500; Monthly Savings: $1,375.00

Correct answer: Target: $22,000; Monthly Savings: $1,833.33

Explanation: For conservative planning, an emergency fund should cover 4-6 months of non-discretionary expenses. 4 months of non-discretionary expenses: $5,500 x 4 = $22,000. To reach this in 12 months, they need to save $22,000 / 12 = $1,833.33 per month.