What EF do I REALLY need?

**buzz** · 08-26-2007, 01:24 PM

Wow, $11,000 in kitchen remodling! Please send me pics when it's done--I love to cook too.

I'm inclined to say go for it, but are you prepared for the project going significantly over-budget?

**Tree0164** · 08-26-2007, 01:40 PM

If your bare bone expenses are $2000 I would keep it atleast at $12k.

You also need to take into consideration COBRA costs as well.

**scfr** · 08-26-2007, 01:51 PM

What if you cut back to the $2,000 per month that you could live on right now, and start putting an extra $500 per month toward the kitchen remodel? If it's the sort of remodel you are planning to do piecemeal, rather than gutting the whole kitchen, you could start remodeling a bit at a time in perhaps a month or two, and you could start with whatever you dislike the most (whether it's the floors, appliances, whatever).

I'd be hesitant to go below a 6-month EF since you can't be guaranteed the severance or unemployment.

**buzz** · 08-26-2007, 02:24 PM

All the financial advice I have seen recommends an EF equivalent to 3 to 6 months of expenses. I take that to mean;

3 months--
Ideal case...Dual income, no dependents, good income/expense ratio, investments, stability, etc.

6 months--
Not so good...Single, barely adequate income, many dependents, nonstable income or health problems, etc

I think pegging Fizgig at the extreme, worst-case end of the scale is not necessarily called for. She is single, makes good money, is secure in her job, has an alternate source of income, and has safety nets in place. The sky is not falling.

**Fizgig** · 08-26-2007, 05:39 PM

The total budget of the remodel is $12k, so I figure it'll come out to more like $14-15k after the inevitable overruns occur. Unfortunately it's not workable piecemeal. I'll be changing the layout and removing walls, so it's a complete gut and rebuild. I'm planning to use a 0% credit card so I can continue earning interest on my savings, and pay it down over the course of the intro period. (That's a little nerve wracking for me, too - not used to carrying debt!)

COBRA is something I need to consider - How much on average does that run?

I'm trying to look at this reasonably and not blindly follow the general rules of thumb. I work on a government contract that's in place until the end of 2010. There's no way I'd be fired/laid off unless a major economic apocalypse came down or I went nuts and took a gun to work or something. It takes three years on the job for someone to be useful in my line of work, so with all of that I feel pretty secure.

Is it reasonable to count severance/unemployment as part of an emergency fund? I know that it's "imaginary money", but frankly I don't want to keep sacrificing my present because of some paranoid sense of doom.

**disneysteve** · 08-26-2007, 05:53 PM

Whether or not you should count severance as part of your EF depends on what conditions need to exist for you to collect that money. Do you get it if you are fired for some reason? How about if you quit voluntarily? I would imagine the severance is only if you are laid off or "job eliminated." So no, I wouldn't count it.

I see nothing wrong with counting unemployment but I really don't know how that all works. Can you collect if you are fired or quit?

It appears that you currently earn $1,600/month more than you spend, so you would resave the $12,000 in about 7 months.

What I'd like to know is what does your savings picture look like. What % of income are you currently putting away for retirement and in what kind of plan? Is there a match?

If you have all your financial ducks in order, I see nothing wrong with spending some savings on the remodel and replenishing it over the next 7-8 months.

**moneymatters** · 08-26-2007, 06:19 PM

Originally posted by disneysteve View Post

I see nothing wrong with counting unemployment but I really don't know how that all works. Can you collect if you are fired or quit?

From what my mom told me, a person can collect unemployment if they are fired or quit but certain factors are involved. For example, if you're hired on a new job and your job performance does not meet the expectations of your employer, you can collect unemployment if they fire you...Or if you quit a job that became a risk to your health later in employment, then you can collect. The decision really depends the state you live in.

**Fizgig** · 08-26-2007, 07:01 PM

Originally posted by disneysteve View Post

Whether or not you should count severance as part of your EF depends on what conditions need to exist for you to collect that money. Do you get it if you are fired for some reason? How about if you quit voluntarily? I would imagine the severance is only if you are laid off or "job eliminated." So no, I wouldn't count it.

I see nothing wrong with counting unemployment but I really don't know how that all works. Can you collect if you are fired or quit?

No severance if I quit or am fired. I love my job and would only quit if I were transitioning to something better, and getting fired is an extremely remote possibility. Not saying that I walk on water or anything, but half of my department is in training (like I said it takes about three years), and I'm doing a variety of work that two years ago was done by three people. My manager is extremely worried because several people have left to work on an exciting new project, and he gave me a monster raise six months ago to keep me there.

Originally posted by disneysteve View Post

It appears that you currently earn $1,600/month more than you spend, so you would resave the $12,000 in about 7 months.

What I'd like to know is what does your savings picture look like. What % of income are you currently putting away for retirement and in what kind of plan? Is there a match?

If you have all your financial ducks in order, I see nothing wrong with spending some savings on the remodel and replenishing it over the next 7-8 months.

8% with a 60% employer match which I've contributed to since the age of 23, and I also have a pension plan currently worth $800/mo. (Goes up with each year of employment.) No car loans, no credit card debt, student loan down to about 2k. I haven't started a Roth IRA yet because I wanted to stock the EF and do the kitchen...

**scfr** · 08-26-2007, 07:32 PM

Say ... This sounds like an excellent question for Suze Orman's "Can I Afford It?" segment.

Page not found - Suze Orman

https://www.suzeorman.com/igsbase/igstemplate.cfm?SRC=SP&SRCN=sos_inquiryform&GnavID=19&SnavID=18

Fizgig, if you go ahead with the remodel, be sure to include some $ in your budget for eating out more than you normally would while the kitchen is gutted.

**Watson Inc** · 08-26-2007, 11:05 PM

Fizgig,

I understand your frustration; however, I cringe when I hear the term "job security" because the only true job security is your ability to get another job. It sounds like you are doing fine saving. With your stats, I would pull $4000 from my EF and save another $8000 over the next 4 months and do the remodeling without assuming much risk (i.e. by decimating my EF).

**Diolla** · 08-27-2007, 04:30 AM

There are other types of emergencies than losing your job,

What if your house suffers a breakdown? Replacing a sewer line/water line, hvac system...can cost major $$$

What if you have an unanticipated medical problem? Yes you have medical insurance but do you have enough leave time to cover a 3 month or longer hospital/recuperation period? Will your disability cover it? Will you have to get COBRA?

Your car is totaled, insurance pays the depreciated value, do you have funds to pay the difference? or a new car payment?

I am just trying to cover the basics, perhaps none of these would cause a problem for you but I think it is important to remember that a job loss is only one type of emergency and not even the most likely one.

**PrincessPerky** · 08-27-2007, 09:28 AM

IMO split the difference...commit to saving up half the remodel, and use the other half from savings...

OR if the price will go up dramatically, then look at the worst case scenario...can you go home again? Can you cut your expenses beyond the 2K (not that it sounds extravagant, just saying...could you)

If you borrow the money at 0% then start paying it off from interest, how many months will you have? if you live frugally for that time will it come close the the whole cost of the remodel from your surplus income? if so then so long as you don't go over the savings you are still doing well.

Also will the new kitchen help you save money? Are you currently eating more expensive due to the horrid kitchen? Will the new remodel increase the value of the house? Is there a long term gain besides comfort? If so those go on the side of do it soon.

I figure a reasonable savings is important, but so is a livable house. and with no dependents, well heck If I had no family and lost my income I could (and have) lived in my car.....since you are saying it isn't likely to happen, look at the worst, then decide how low you will go and plan enough EF to avoid it.

If you add up all the costs of all the possible things that might go wrong a 'safe' person would never stop saving!

**DebbieL** · 08-27-2007, 09:46 AM

Personally, if I were in your position financially (and I wish I were, lol) I would go for it. It really doesn't sound like you are risking much. I think you've already thought through most of the things that could happen. I don't see any reason for you not to do this. You are in a good position. Have fun with the new kitchen!

**Scanner** · 08-28-2007, 10:18 PM

Fizzgig,

How much home equity do you have?

If it's substantial, and substantial to me is around 50% or more, would you consider a HELOC to keep on hand in case of an emergency?

That's what I plan to do regarding some home improvements.

I would do it and here's why.

A kitchen remodel from a home equity point is probably a dollar for dollar exchange. If let's say you remodel your kitchen for $15,000 and you have to sell 6 months later because your EF is dangerously low and you are now looking at tapping your HELOC.

You would probably get the $15,000 back as you sold it. You then just retire the debt after the sale. Just be aware that it takes about 9 months to sell a property nowadays, which again, I would only recommend this if you had some equity to play with, because home prices are so in flux.

So, my opinion, if your home equity is substantial. . .yes, you can afford it.

Remember, a kitchen remodel isn't money entirely "blown" like a car or a shiney new grill or a vacation or something and take that into calculation. Especially if your kitchen upgrade results in more counterspace or more cabinet space, something marketable.

What EF do I REALLY need?