To determine how much you need to save for an emergency fund, let's go through the calculations step by step:
1. Calculate Weekly Income:
Hourly wage = $12.75
Hours worked per week = 40
\[ \text{Weekly Income} = \text{Hourly wage} \times \text{Hours worked} \] \[ \text{Weekly Income} = 12.75 \times 40 = 510 \]
2. Calculate Annual Income:
Assuming you work all 52 weeks in a year: \[ \text{Annual Income} = \text{Weekly Income} \times 52 \] \[ \text{Annual Income} = 510 \times 52 = 26,520 \]
3. Calculate Deductions:
- FICA: 7.65%
- Federal Tax: 10.34%
- State Tax: 6.78%
Total Tax Rate: \[ \text{Total Tax Rate} = 7.65 + 10.34 + 6.78 = 24.77% \]
Now calculate the total deductions: \[ \text{Deductions} = \text{Annual Income} \times \text{Total Tax Rate} \] \[ \text{Deductions} = 26,520 \times 0.2477 \approx 6,573.624 \]
4. Calculate Realized Income:
\[ \text{Realized Income} = \text{Annual Income} - \text{Deductions} \] \[ \text{Realized Income} = 26,520 - 6,573.624 \approx 19,946.376 \]
5. Calculate Fixed Expenses:
Fixed expenses are 25% of your realized income: \[ \text{Fixed Expenses} = \text{Realized Income} \times 0.25 \] \[ \text{Fixed Expenses} = 19,946.376 \times 0.25 \approx 4,986.594 \]
6. Calculate Emergency Fund Savings:
You want to save 5 months' worth of fixed expenses: \[ \text{Emergency Fund} = \text{Fixed Expenses} \times 5 \] \[ \text{Emergency Fund} = 4,986.594 \times 5 \approx 24,932.97 \]
Final Results:
You need to save approximately $24,932.97 for your emergency fund.