A new kitchen or an adequate emergency fund?

I recently bought a fixer upper condo with a 30-year mortgage. I'd like to renovate the kitchen but would have to tap deep into my rainy day fund to do so. With the economic uncertainty of late, I'm hesitant. How much would you recommend someone keep in their rainy day fund?

I think you should trust your gut instinct on this one and not tap the emergency fund to pay for the kitchen renovation. I'm sure it is tempting because it is a ready supply of money but with all that is going on in the markets right now, you absolutely need an emergency fund.

How much do you need? It varies with an individual's personal circumstances. If you are single, you might want a bigger emergency fund than a married couple who really only needs one income to get by. You should also consider your past employment history. If you are a tenured professor, you can probably have a smaller emergency fund than someone who has a history of working six months to a year at a string of past employers. Also consider your compensation structure. People whose compensation is straight salary might have a smaller emergency fund than someone whose compensation varies widely because they are paid on commission.

So the short answer on what size emergency fund is appropriate is "it depends". The typical size is three to six months of "must pay" expenses. "Must pay" expenses are things like the mortgage, your rent, the car payment, utilities, etc. If you are saving $250 a month for a vacation at the end of the year, I wouldn't include that because that is a discretionary expense. Likewise, if your normal entertainment budget is $700 per month because you eat out a lot and go to a lot of movies, you might reduce that amount drastically if you were unemployed so you wouldn't have to include it in your emergency fund calculations.

The key point is that the emergency fund is not 3 to 6 months of income or take home pay, it is 3 to 6 months of non-discretionary expenses.