Your Emergency Fund Situation?

[b4freedom]

What kind of emergency fund do you have? How much do you think is enough? I’m not interested in dollar amounts as much as I’m interested in how you figured out how much you should have and for what. I’d like to have “6 months of expenses”. But, I’m not really sure what that means? If I got fired from my job, I’d like to think that I’d cut back my spending and slim down the discretionary spending. My month to month expenses include discretionary spending. I don’t have a strict budget, per say, but I’m always within “budgetary constraints”. Meaning that I don’t spend more then I earn and I "pay myself first". I want to have enough money for an “emergency”. However, I want to pursue better investments, such as an IRA. How do I figure out the right amount?

[maat55]

It was hard for me at first to dedicate 6 months expenses to a lowly savings account. I kept wondering how I could invest it shorterm(I passed up buying silver at 16, ) .

But, I have it parked earning 4.1% in a local bank, so it does not bother me that much. I figure if I get really desperate, I could tap the ole Roth(I'd sell blood first).

[Slug]

This goes back to risk tolerance. For me I want to have 6 months of expenses immediately accessible. I'm just about there. This is where my risk tolerance lies. Once I have this, I'll start feeling more free to fund other accounts (traditional IRA account, replace a vehicle account, re-do the roof account, etc...). For me I'm not comfortable pursuing these other accounts until the EF is in place. However, 401k and Roths are funded simultaneous to the EF.

[tan fish]

Originally Posted by maat55

It was hard for me at first to dedicate 6 months expenses to a lowly savings account. I kept wondering how I could invest it shorterm(I passed up buying silver at 16, ) .

But, I have it parked earning 4.1% in a local bank, so it does not bother me that much. I figure if I get really desperate, I could tap the ole Roth(I'd sell blood first).

4.1% interest in a local bank? What kind of account is that? I'm only getting a measly 1% with my savings account now (ING Direct).

[b4freedom]

What % of your after tax income is "6 months of expenses"? And does "6 months of expenses" include only essential items?

And how on earth does anyone manage to save 6 months of expenses? I'm saving for a new car that I desperately need, house repairs, emergency fund, retirement, etc. How many of us can actually save for all of this? I read a report recently that said that we need to save 20% of our income for retirement. I know so many people living pay check to pay check. How is it possible for them to save 20% I often feel that I have to shut my mouth and not let anyone know that I have an EF. I post this in fear that someone I know will see it. I wish I could look into other peoples finances to see how they were REALLY doing.

[jpg7n16]

Many people buy too much house and too much car - both with debt. Those large debt payments rob them of the cashflow needed to save up for their future.

Then they'll scour through all their minute expenses trying to cut back on cable, or soap, or clip $10 of coupons a month, while thinking that the housing and car costs are just what they are and there's nothing they can do about them.

It was really easy for me to save up 3 months expenses cash (range is 3-6 months, not 6 months only). My housing costs have been about 15% of my income, and I paid for my car in cash. That leaves me with 85% of my income for pretty much whatever I want. So I was able to quickly save up 3 months in cash, plus a little extra, plus another 8 months in a brokerage account, plus a maxed Roth, plus 15% to 401k. I keep all my cash in my checking account (EF + spending money). And 3 months expenses is about 13% of my pre-tax salary.

It's surprising easy to save up money when your housing and car expenses are extremely low.


If you find yourself worried because you may have included a few discretionary meals out that you would have cut back on when determining what exactly a 'monthly expense' is, you're working too hard. What amount would you need to survive for 3-6 months? That would be all the fixed expenses plus a portion of the discretionary ones. (if you were out of work, you wouldn't be contributing to a 401k) Approximate if needed.

So if you're debating between using $2135 and 2235 as your monthly expense, just go with a $12,500 EF. If that feels too high, go with a $10,000 one. If it feels too low, open a brokerage account in addition to your bank accounts. Keep more than 6 months available if you need the comfort, but just don't keep more than 6 months in cash.

[kork13]

I've come to use a tiered approach to my EF. I keep about 3 months' regular expenses (which I consider to be everything excluding savings, taxes, and charity) in a cash savings account, which in almost every case will cover me. If for some reason that doesn't cut it, I'm slowly building up to having an extra 2 months' expenses in I-Bonds, which can be sold and have cash in hand within a week. Finally, my regular taxable investment account is my ultimate fallback, which has nearly a year's worth of expenses (if necessary--it's actually intended as a house down-payment). I can sell anything in there and have the money within 3 days. In general terms, I consider those 5 months of cash/bonds to be my EF.

To address b4freedom's question of "How do you save 20% or more?", the simplest (best, IMO) way to do it is to make the savings automatic (so you don't have to worry about sending money to savings), and to start small and build up to it. Over time, you get used to not having that money available in your monthly budget, and if you slowly start to increase that amount over time, it gets easier and your savings gain momentum. All of my savings started out (in college) as $20-$50/mo out of a $500 monthly stipend going to savings--almost nothing. Now, I'm up to about 30% of my gross pay. The critical points are to stay out of debt, and to save consistently (even if it's not alot).

[tan fish]

Originally Posted by b4freedom

What % of your after tax income is "6 months of expenses"? And does "6 months of expenses" include only essential items?

And how on earth does anyone manage to save 6 months of expenses? I'm saving for a new car that I desperately need, house repairs, emergency fund, retirement, etc. How many of us can actually save for all of this? I read a report recently that said that we need to save 20% of our income for retirement. I know so many people living pay check to pay check. How is it possible for them to save 20% I often feel that I have to shut my mouth and not let anyone know that I have an EF. I post this in fear that someone I know will see it. I wish I could look into other peoples finances to see how they were REALLY doing.

Keep in mind too that many of the people who post on this forum probably represent that 10% of society who really are financially responsible and aware. That sounds terrible, but you know what I mean. I know plenty of people who have no financial sense whatsoever, are completely over their heads, and definitely are not posting on this board.

[97guns]

i have 1 years worth of emergency funds in cash

[creditcardfree]

Originally Posted by b4freedom

And how on earth does anyone manage to save 6 months of expenses? I'm saving for a new car that I desperately need, house repairs, emergency fund, retirement, etc. How many of us can actually save for all of this? I read a report recently that said that we need to save 20% of our income for retirement. I know so many people living pay check to pay check. How is it possible for them to save 20% I often feel that I have to shut my mouth and not let anyone know that I have an EF. I post this in fear that someone I know will see it. I wish I could look into other peoples finances to see how they were REALLY doing.

Depending on your income it can be very hard to all the saving you are referencing at once. I think the key is to take steps towards the goals. Most people don't save up 6 month emergency fund in one month.

I would not get too hung up on the number of months your savings are worth in the beginning. The important thing is to save something! Many suggest $500 to $1000 as a starter emergency fund. Add to it when you find 'extra' money. That extra money might be found in the form of a tax refund, a rebate, coins you cash in, birthday money received, something you sell online for cash, a garage sale, an extra job, a rasie and so on. The point is just to be making effort towards the goal.

Personally, if you are just starting your emergency fund, I would not encourage you to save 20% for retirement. Maybe you start adding to your 401K, up to the company match. Work up to 10%, maybe one or 2% each year or more frequently. Once you have your fully established EF, you might be able to aim for over 10% to retirement.

You mentioned house repairs. If it is a roof leaking right now, or something major, you do need to make a plan to put as much of your extra cash toward the repairs. However, if your repairs are a 1950's sink that you want to replace, but still works, than you simply need to prioritize these improvements. Pick a dollar amount you will spend each year making these improvements. Save up for them. Once one item is done, save up for the next one. Don't let house improvements keep you from having a small emergency fund or saving retirement.

All the saving can be done, but maybe not always on the level that you read about. Something saved is better than nothing. Don't let the big goals keep you from starting to work on these. My experience has found that the habits of saving and prioritizing are key to financial success.

[bjl584]

My emergency fund is at 6 months worth of expenses as my lifestyle stands today. If I lost my job, then obviously some of my expenses would be cut back, which would probably push my EF savings out to around 8 months.

[snshijuptr]

How much do I have?
6 months worth of expenses. Expenses are my Needs + Wants portion of my budget (approx 6 x 70% of take-home pay). Additionally we are currently adding $10K as we prepare to get pregnant. I plan to adjust again after we buy a house, I get a real job, and DH stops getting pink slipped every year (he's a teacher). I expect our expenses will be higher, but I will feel safer with only 3-4 months.

How did I save that much?
We paid off our car with my leftover college money. Initially we put $200 a month into our EF. We then put all our wedding money into our EF. That got us about half way there. Afterwards we put as much money as we could spare every month. I now have us on a 50/20/30 Needs/Wants/Savings budget. As we expand our budget, the EF is the 4th most important thing on our list of things to save for after retirement, home down payment, and paying cash for a car. Additionally, I steal $200 a month from our Wants budget for the EF. We were lucky enough to start budgeting early in our life so we have avoided life-style inflation.

[Mr Nice Guy]

Originally Posted by 97guns

i have 1 years worth of emergency funds in cash

Of all the the people to have one year supply of CASH, its you? What about the New World Order and the devaluation of the currency due to FEMA death camps and Ben Bernanke?

[MonkeyMama]

The least amount of cash I have ever had as an adult was $5k. This would be my version of a mini emergency fund. I would not feel comfortable with any less than that - but serves as a bare minimum for most "emergencies."

The most I have had is one year of expenses in the bank. We've blown through some of that to support a one-income lifestyle and a family (& to buy a vehicle with cash). But, when we both work we just bank the other income. So, have found it pretty easy to save.

Currently have about 3 months set aside for emergency. $5k in cash (mini efund). $10k in ROTHs (Cash). I am extremely risk adverse so feel like I can have the best of both worlds with the ROTH. Phew!

In addition, we save $5k per year for car replacements and home maintenance type stuff. This is our "one income/family to support" savings rate. I call this my "anti-debt" fund because it pays for the things the average person borrows for. Likewise, it doubles as an emergency fund. I've paid $1k for a vehicle before (twice), and I would do it again if I faced an emergency that drained my cash savings. If times are good, we can pay cash for a little more luxury.

We are at about 5 months' expenses in cash, and 6 months is my current goal. From there, the amount should grow. I'd expect more cash with age. To be clear, my cash savings does not come before retirement, etc. Cash has a very fine place in a well rounded portfolio. 1 year of expenses is probably the most cash I Would keep on hand, but that is with a steady job and an unemployed husband. I'd maybe want more in a more unsteady situation.

jpg nails it on the head. WE are in California so we may have more tied up in a house than average. But regionally, we have an extremely small house payment, and we just don't spend a lot of money on cars. We don't have any payments (non-mortgage) and we don't pay non-mortgage interest, so we have more to save.

[MonkeyMama]

P.S. We rarely buy NEW things. That is a BIG thing I often bring up on how we can afford the one income thing.

Used, Used, Used. You name it - we buy it used. Has saved us a FORTUNE over the years.

[disneysteve]

Originally Posted by b4freedom

does "6 months of expenses" include only essential items?

And how on earth does anyone manage to save 6 months of expenses? I'm saving for a new car that I desperately need, house repairs, emergency fund, retirement, etc. How many of us can actually save for all of this? I read a report recently that said that we need to save 20% of our income for retirement. I know so many people living pay check to pay check. How is it possible for them to save 20%

Yes, your EF includes just essentials. Why? Because if you lost your job, you could cancel cable TV, stop eating out and get rid of other non-essential expenses until you got your income back on track.

Originally Posted by jpg7n16

Many people buy too much house and too much car - both with debt. Those large debt payments rob them of the cashflow needed to save up for their future.

I think JPG makes a great point. So many people put themselves into a lifestyle that they can't really afford and then wonder why they can't make ends meet or save any money.

Follow some basic rules:
Car payment, if any, should not exceed 10% of your monthly income for no more than 3 years.
Housing (rent or mortgage) should not exceed 28% of monthly income (house should cost less than 3 times your annual income).
Don't carry any balances on credit cards. If you can't afford it, don't buy it.
Limit student loan debt as much as humanly possible.

If you stick to those 4 rules, life will be much easier.

Most people who are living paycheck to paycheck put themselves into that situation. They earn enough not to live that way but as a result typically of taking on too much debt and living beyond their means, they don't have anything left after all the payments are made.

[disneysteve]

As for my wife and I, we have plenty of reserves - more than 6-months worth of expenses in cash and fixed income investments. We save and invest at least 25% of our income. We are debt-free except our mortgage and we are paying extra on that (which is part of the 25%).

[EconoMutt]

We've got 5 month's EF save and are slowly adding to it.
Our goal is 6 month's reserve based on a slimmed down budget.
No expensive cell phone plans, no cable,no eating out, etc.

[skydivingchic]

tan fish - You can find high yield checking accounts at Checking Finder. I imagine this is the type of account maat has. I've had one for ~3 years now and love it. My bank also offers a linked savings account with 2% interest, which I also have. This is NOT a good place for your EF if you are not disciplined enough to realize that the balance in the account is your spending money AND your EF. You MUST have a way to keep track of the EF balance and have the discipline to not spend it.

I have a two tiered EF. First tier is $5,000. This is a number I chose a bit randomly, but I believe it will cover pretty much any "normal" emergency. Things like major car repair, max out of pocket medical expenses, etc. The second tier is the more standard 6 months of expenses. This is to cover the event that I am laid off and can't find work or some perfect storm of smaller emergencies not covered by the $5,000 first tier. I took my entire budget (including fully funding a Roth, spending money, etc) and multiplied by 6 to come up with my number. I realize that should I be laid off, there are likely things that I would cut back on. However, I would also be facing a massive COBRA payment, so I figure that evens out in the end. These two tiers were fully funded as of ~2 years ago and have not been touched since.

On top of these EF savings buckets I have a personal savings account for vacations and a new to me car. Right now that bucket is actually larger than both of my EF tiers combined, but it varies wildly. Of course in a real emergency this money and other sinking funds for things such as gifts and car maintenance could also be used. If I exhausted all that, I could likely survive for ~18 months without income.

Other savings buckets include a total of a bit over 20% to retirement (not counting what my employer matches, just what I contribute to 401k and Roth), sinking funds for vehicle maintenance, cat care, and medical expenses. Also, regular contributions to the personal savings mentioned above.

How did I do it? It didn't happen overnight - the fully funded EF probably took 1 year or so once I got serious about it. I used a few savings strategies that have already been mentioned. First, when I started working I signed up to contribute 12% to my 401k on day one. That amount has increased gradually over the years, but the point is I've never seen that money. From my very first paycheck I had to learn to live on 88% of my salary (and now less). Each time I get a raise I adjust my % to retirement accordingly BEFORE the first paycheck with the new rate, so I never see the money. I've automated as much as I can, which helps tremendously. Second, the housing and cars deal. My mortgage and HOA fees total 23% of my take home pay (12.5% of gross) and that is with extra going to principle. No car payment and haven't had one in about 7 years. I've got ~172,000 miles on it now and intend to drive it till it won't go any more, then pay cash for my next vehicle. No other debt.

You may not be able to focus on everything at once, but the most important step is to start. Prioritize your goals and start saving. Personally, I would start saving for retirement immediately - at least get any match and I'd say no less than 10%. Next time you get a raise, adjust the % to retirement accordingly. Anything you have left over goes toward your next priority.

[97guns]

Originally Posted by Mr Nice Guy

Of all the the people to have one year supply of CASH, its you? What about the New World Order and the devaluation of the currency due to FEMA death camps and Ben Bernanke?

i had a lot of it and a 1 year cushion just puts me at ease. IF THERE IS A TOTAL DOLLAR COLLAPS there will be a window where cash is king, all electronic monies will cease to exist.

im protected enough with metal that IF THERE IS A CURRENCY RESET the 1 years worth of emergency reserves will be trivial to me.