emergency fund?

[jIM_Ohio]

Originally Posted by Fizgig

I feel most comfortable with 6 months of expenses in the bank. It makes sense to keep some of that in investments, but I feel better having it liquid so that I wouldn't have to sell off stocks. It's one of those things where the mathematically correct answer doesn't sync up with piece of mind, but that's okay. I keep it in a higher interest online bank.

Moderate does not mean stocks (to me). Bonds or other stable value investments are available.

[cantretire]

I'm using my monthly take home pay as my base figure, even though I could reduce quite a bit of expenses in an emergency. I'm aiming for 8 months and am at about 4 now. I figure in an emergency, with no other income, I could probably stretch it to 5. If collecting UI or disabilty, i could probably stretch it to 7. When I hit my goal of 8 months, I think i could stretch it to a year if needed.

I'm spreading it to 1/3 in an online bank account and the rest into short-term CDs. This way I can get a little more interest but still have access when I need it.

[garilon]

Why aren't we talking more about having insurance? an emergency fund is great, something you shouldn't be without but it can't replace having decent insurance. Wouldn't you rather have your insurance to tide you over the emergency and keep your nest egg than have to use up your hard earned savings. You should insure against sickness disability, redundancy etc. When I was made redundant I was so thankful to have had the insurance in place - it allowed me to continue a study course full time (previously I had been doing it part time) and I got a better job as a result, my mortgage was paid in the mean time and I kept most of the savings I had.

[disneysteve]

Originally Posted by garilon

You should insure against sickness disability, redundancy etc. When I was made redundant I was so thankful to have had the insurance in place

What is redundancy and how does one insure against it?

I totally agree with health and disability insurance. Next to job loss, the other common reasons for loss of income are illness/disability.

[Aleta]

Do not look at your gross pay, look at your take home pay. If you insurance is deducted out of your pay, you should include that in your EFund. An emergency fund is for necessary expenses, not savings, etc. Each person's jobs will determine what you need. If you are self-employed - you will need more months than most people. I think that you start out with let's say - 1 month and each goal should be to increase to 2 mos. etc. until you are where you feel comfortable.

Budgeting each month for items such as a purchase for a car, car repairs, home maintenance, medical deductions, vacations, gifts, holidays should be a part of your monthly budget. In the beginning you may need some of your emergency funds to pay for an UNEXPECTED expense.

I have two emergency funds. I have cash at home because I live in a hurricane prone area and have lived through banks not operating during those times and I keep my emergency funds in money markets, savings accounts, and CD's. You want that money to be accessible when you need it.

I do not like investing emergency funds in the market. If you haveupir emergency fund fully funded; you can then start investing in some kind of funds such as index funds, etc.

[jIM_Ohio]

redundancy=downsized=RIFFED

[Snave]

I think I have said something like this everytime EF's come up. Once you get to an amount that is a good deal more than your EF, then I would suggest investing a good portion of that money rather than having it sit in a money market account earning a few %. If 3-6 months of income is 25K, and you get to 30K, then I would keep 5 in a MMA and invest the other 25K. I know others will disagree, but I have rarely had a significant emergency that the 5 grand couldn't cover. The other 25lK could be in a mutual fund earning singificantly more interest. You could always pull it if you need it. I also know some will say that you could then be selling it at a bad time and at a loss. Well, if I didn't have an emergency for a few years and it was earnig 9-10% as oppossed to 4-5, then I am ahead! It is all probability and as I said, I have rarely had an emergency that is that significant.

[maat55]

I've never shopped for disabillity ins. Dave say's it's a must. What's the going rate for a non smoker, 45 in good health? I'm not sure any of that matters. If you have it, how much are you paying?

[maat55]

Originally Posted by Snave

I think I have said something like this everytime EF's come up. Once you get to an amount that is a good deal more than your EF, then I would suggest investing a good portion of that money rather than having it sit in a money market account earning a few %. If 3-6 months of income is 25K, and you get to 30K, then I would keep 5 in a MMA and invest the other 25K. I know others will disagree, but I have rarely had a significant emergency that the 5 grand couldn't cover. The other 25lK could be in a mutual fund earning singificantly more interest. You could always pull it if you need it. I also know some will say that you could then be selling it at a bad time and at a loss. Well, if I didn't have an emergency for a few years and it was earnig 9-10% as oppossed to 4-5, then I am ahead! It is all probability and as I said, I have rarely had an emergency that is that significant.

I have 10,000 in my HYS and I think I will let it grow to 15,000 on it's own, then invest the growth.

[Aleta]

One other point to think about is that the emergency fund amount will not stay at the same amount. If you have $25,000 in your EF, you would want it to grow by at least 4% a year in order to keep up with inflation. You would need for that account to earn $1,000. (4%) for growth, making it a total of $26,000.

I reevaluate my expenses each year to see how much I need to have there. There have been some years when the interest rate was low, that the account wasn't earning that much.

Your expenses will change over time and you will want to revisit that account and maybe add to it. Hopefully, laddering it with CD's will give you a better rate of return.

[disneysteve]

Originally Posted by Aleta

If you have $25,000 in your EF, you would want it to grow by at least 4% a year in order to keep up with inflation.

Your expenses will change over time

I agree that your expenses change over time. The 4% thing isn't really accurate, though, because just saying the inflation rate is 4% doesn't mean your expenses will increase 4% each year. Many of your biggest expenses may be fixed, like your mortgage and car payments. Our auto insurance premium drops a bit each year as our cars get older and less valuable. Other expenses may disappear entirely, like the payments for DD's braces which will end after the May payment, or a car that gets paid off.

So you do need to periodically revisit your EF needs. Sometimes you may need to increase the EF, other times you may find you can actually decrease the EF as expenses fall.

[Aleta]

Steve: I agree with you. I used the 4% figure the same way we do when we are figuring out what we need in retirement scenarios. I personally know that my costs have gone up more than 4%. That's why I said that each person needs to revisit the emergency fund each year.

I don't think that I would decrease it. Instead of 8 or 9 months of an emergency fund; I may have 11 or 12 months. In my husbands case, that is ideal since he is self-employed and without alot of benefits that some people have.

It is true, there is no one size fits all ideal. There are guidelines to go by and also what you need in there to sleep soundly at night.

[Ima saver]

I keep several years worth of cash in local banks right now.

[disneysteve]

Originally Posted by Ima saver

I keep several years worth of cash in local banks right now.

We also have several years worth of expenses in savings, but it isn't all in the bank. Right now about 70% of our portfolio is invested in the market. About 30% is in bonds, CDs, MMFs, etc.