Final answer:
To build an emergency fund while paying off debt, it is generally recommended to save three to six months' worth of your monthly income. The amount may vary based on individual circumstances.
Step-by-step explanation:
To determine the amount of money you should have in your emergency fund while working on baby step 2 (pay off all debt), it is generally recommended to have at least three to six months' worth of your monthly income saved. This will provide you with a financial cushion in case of unexpected situations like unemployment, major home repairs, or medical expenses not covered by insurance.
For example, if your monthly income is $2,000, you should aim to save between $6,000 and $12,000 in your emergency fund. The exact amount will depend on your personal circumstances, such as the stability of your job and the likelihood of encountering emergencies.
Keep in mind that this is a general guideline, and you may need to adjust the amount based on your specific needs and goals. It's always a good idea to consult with a financial advisor to determine the right amount for your emergency fund.