Proper emergency fund our situation

**puck36** · 01-09-2007, 05:31 PM

Re: Proper emergency fund our situation

The general rule for an emergency fund is 3-6 months of expenses in savings. Then I would invest 15% of income in good mutual funds. You alread are doing a good job with 16.5% in the 401k. But before I would do anything, I would pay of your wifes care.

1. Pay car off
2. 3-6 Month emergency fund
3. 15% in mutual funds

**Broken Arrow** · 01-09-2007, 05:35 PM

Re: Proper emergency fund our situation

Roughly speaking, I believe the ideal number is 30k. That would represent six months of your current income. I also realize that people don't just wave a magic wand and suddenly have 30k saved up. 5k is a really good start though. I recommend to get your EF as high as you can, especially if you're planning to add a family member and fall back on a single income.

**The Budget Man** · 01-09-2007, 08:49 PM

Re: Proper emergency fund our situation

You mention that you have stopped making extra payments on your house. This is a very expensive exercise as every dollar off your house is less you are paying long term interest on.

An emergency fund is a great idea but you will always have emergencies and so it will dissapear.

Many people find that it works best for them to be able to have a sensible emergency fund like you already have and then they get rid of the big debts like the house. If the worst happens you can always borrow against it or reorganise the repayments.

All the best with the baby. Enjoy them while they're young and while they are growing up and when they are adults.

Enjoy Your Money
The Budget Man

https://www.PersonalityBudgeting.com

The starting place for any budget

**tinapbeana** · 01-10-2007, 06:04 AM

Re: Proper emergency fund our situation

ok, here's my take, feel free to take or leave as you please

and BTW, you're number are so similar to mine it's eerie, although the gender roles are reversed in my situation.

you're anticipating your wife being on leave for 3 months and she brings in 40% of the household income, yes? and you're still going to be working? then, if it were me, i'd calculate how much she actually brings home every month and want to have 6 months worth of her take-home stashed away. then i'd pay off the car, b/c that will save you almost 400 per month.

at this point, it depends on if the 65k you originally posted is gross or net, although i'm guessing gross. if the 65k is gross then your wife's salary (40% of total) is about 26k, and after 12% 401k contribution and taxes she probably brings home about $1335 per month. multiply by 6, and you have $8010 as a goal. since you already have 5k stashed, that leaves 3-4k to add. then it would be time to focus on the car.

on the other hand, you could take the 5k pay off the car, make 7 more payments and have the car paid off, then save the 359 car payment for 11 months and have a total of $3949 stashed by the time the baby comes.

if it were me i'd stash the 8k first then focus on paying the car afterwards b/c the carpayment is right around 10% of your current combined take-home and 13-14% of the take-home you'll have when you're wife's on leave. essentially, it doesn't seem like it'll produce an undue hardship.

only real variable here is that you may need/want to trade the vehicle in once the baby has arrived....

**LivingAlmostLarge** · 01-10-2007, 06:54 AM

Re: Proper emergency fund our situation

Only variable is if your wife will really want to work after the baby comes. If so pay off the car, then save as though she's not going back to work and figure out your budget if she doesn't work.

**Lonewolf** · 01-10-2007, 09:05 AM

Re: Proper emergency fund our situation

Originally posted by Broken Arrow

Roughly speaking, I believe the ideal number is 30k. That would represent six months of your current income. I also realize that people don't just wave a magic wand and suddenly have 30k saved up. 5k is a really good start though. I recommend to get your EF as high as you can, especially if you're planning to add a family member and fall back on a single income.

Broken Arrow, always nice to have more, but I have always looked at it as 6 months of your current EXPENSES. If you were in a situation where both were out of work, they would not be paying taxes, funding 401K's, etc on the money in the emergency fund (beyond the X amount of interest it would be generating). So I think it is more important to look what does it cost you every month to pay the mortgage and other bills and ideally have six months of thoses expenses saved. My 2 cents.

But with kids coming along, I guess it couldn't hurt to have more

Wolf

**vsjhoc** · 01-10-2007, 10:49 AM

Re: Proper emergency fund our situation

Originally posted by Lonewolf

Broken Arrow, always nice to have more, but I have always looked at it as 6 months of your current EXPENSES. If you were in a situation where both were out of work, they would not be paying taxes, funding 401K's, etc on the money in the emergency fund (beyond the X amount of interest it would be generating). So I think it is more important to look what does it cost you every month to pay the mortgage and other bills and ideally have six months of thoses expenses saved. My 2 cents.

We had a thread about this awhile ago.

Some people argued that while you don't have the expense of taxes and 401ks, you might have to get health insurance, plus you have costs associated with job hunting (travel, clothing, dry cleaning, resumes, etc.)

When I was between jobs I didn't have to pay for an expensive parking spot at work, but the COBRA health insurance premium was about twice what the parking cost.

**tinapbeana** · 01-10-2007, 10:57 AM

Re: Proper emergency fund our situation

Originally posted by vsjhoc

When I was between jobs I didn't have to pay for an expensive parking spot at work, but the COBRA health insurance premium was about twice what the parking cost.

while this is a valid consideration when creating an EF to cover you in the event of a job loss, the OP is dealing with transitioning from 2 incomes to 1, possibly for a comparatively short term.

to the OP, perhaps another discussion is in order with your wife as to what her ideas are regarding going back to work, a best case/worst case scenario, that sort of thing. also, the two of you could sit down and calculate whether or not you could successfully maintain a budget based on just one income for the long term if need be...

**ren** · 01-10-2007, 06:45 PM

Re: Proper emergency fund our situation

If your wife has short term disability coverage through her employer, she may be able to get disability during her maternity leave. It's something to look into.

As far as where to put money, I'm with the others who say pay off the car. If you have money to spend after that, max out the Roth -- you're probably still buying mutual funds in that and you won't have to pay taxes on it as it grows.

**autoxer** · 01-11-2007, 04:22 AM

Re: Proper emergency fund our situation

Originally posted by TexasSaver74

My question is we would like to also start investing in mutual funds, but we plan to have a baby in a year and a half and wife will not work for 3 months which will lose 40% of our income for those 3 months. What would you recommend we build our emergency fund up to to be in a good situation for these times?

What are your goals for the mutual fund investments? Taxable accounts? Is that going to be considered part of your emergency fund or more long term?

If I was in your situation, I would consider adding more to the Roth IRA & pick some mutual funds within the Roth for that money. I would take advantage of any tax breaks I can get, unless I had some specific short term goals that I needed that money for.

So right now your wife earns $26k & puts 12.5% into her 401k which is $3250 + your $200/month (in the Roth) is $2400 = $5650. Divided by $65k = 8.7% of your income going towards retirement. If you maxed out your Roth @ $4k, then that would total 11.1% of your income saved towards retirement.

**Tree0164** · 01-12-2007, 02:19 PM

Re: Proper emergency fund our situation

I would take the extra money at this time and pay down the car. It might get you paid off 6-8 months sooner but just think you would be able to save a few thousands if you continue putting that car payment into savings.

Continue doing the retirement funds, but wait a bit until you have 6 months of expenses saved up to start doing extra mutual funds.

Good luck!

**The Budget Man** · 01-13-2007, 01:50 AM

Re: Proper emergency fund our situation

Originally posted by LivingAlmostLarge

Only variable is if your wife will really want to work after the baby comes. If so pay off the car, then save as though she's not going back to work and figure out your budget if she doesn't work.

What a great idea. Many things change when little feet enter the home so having a budget based on one wage to give you the freedom of choice would be a great idea.

Enjoy Your Money
The Budget Man
www.PersonalityBudgeting.com

Give yourself a budget that changes automatically to meet your situation

Proper emergency fund our situation