Quote:
Originally Posted by Diolla
I have alway hated the one size fits all 3-6 month of expenses.
I figured my EF on several factors-
1) I have a very secure job and could cover my basic needs on an $8 an hour retail job. (Lost job $2000 maximum needed, however if it is because of illness I would need 6 months plus health insurance until LTD kicked in $10,000)
2) I own a home so major breakdowns could happen (Sewer collapses $8000 needed)
3) I have a very old car (Car replacement needed $6000 for used vehicle)
Therefore worst case scenario I would need $10,000 (but not all of it immediately) so I have $6000 in a MM and $4000 in other investments (I could tap into over time) I have excellent credit so I could use that until the money was available.
Each situation is unique and should be looked at individually. It really is just the amount that lets you sleep at night.
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Another way to tackle this is to budget for a new sewer or new car by looking at life of object, cost of object, and adding that to budget each month.
For example, new hot water heater every 10 years. Cost $2500. 10 years*12 months =120. $2500/120= $21
new car every 10 years. Cost $35,000 (includes maintainence and inflation on car). $35000/120=$292/month
new HVAC every 15 years cost $3500. 3500/180=$20/month
new roof every 20 years cost $5500. $5500/240=$23
add these up ($23+$20+292+21) and set this aside each month in EF or similar. $356 per month.
When working and in a new house, most people will only be dealing with car, but as you get closer to retirement it is important to account for all "random and semi annual costs" in a budget because a fixed income needs to account for these things. If HVAC and Roof go in same year, that would deplete EF considerably, so considering these things as money spent is an important retirement budgeting tool.