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Originally Posted by Broken Arrow
Just for the sake of conversation, I think emergency funds should reflect the realistic mishaps that that you are likely to face.
Also, it doesn't have to be either-or, but can be some kind of mix between the two.
Just thinking out loud.
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I think you're right. For example, I don't worry too much about a disability that keeps me from working, because I have excellent disability coverage. I just need to provide for the waiting period before my benefits start.
I'm also not particularly concerned about a sudden job loss due to the nature of my job. When I was out of work before, it was a planned situation as I quit. I knew a couple of months in advance that I was going to be giving notice, so we started making some changes to our finances to prepare for the period of unemployemnt - stopped extra loan payments, froze auto-investment contributions, cut back on discretionary spending, and otherwise beefed up our cash positions.
And I agree that it should be a mix of EF funding and debt reduction. Paying down debt is great, but you should also have at least a modest EF, as elgin described, so you aren't forced to rack up new debt for small emergencies.