What is an emergency to you?

[Diolla]

I keep reading that you should have 3-6 months of expenses/income in a liquid emergency fund. It seems like tying the emergency fund to income or expenses is a bit general. My expenses are really low, around $1000 a month so a six month emergency fund wouldn't begin to cover some of the expenses I hear about.

If you were a homeowner wouldn't you need a larger emergency fund? For large ticket items such as a sewer or heating system going out.

If you were single wouldn't you need a larger emergency fund? If you were laid up you would have to hire someone to do all those things you couldn't do yourself.

If you have a SAHP wouldn't you need a larger emergency fund? To do those things that the SAHP does.

I am assuming everyone has insurance for health and home but there are things not covered by insurance.

So I just wanted to ask, what do you consider an emergency? specifically, and how would you figure how much to put in your emergency fund?

[kimiko]

Losing my source of income, whether by losing a job or by some other complications that prevent working. Everything else can be pay in installment. My saving account + ROTH IRA are my emergency funds, so that would make every penny I have regardless of how long it would last me.

[skydivingchic]

You are right in that the rule of thumb for an EF is somewhat arbitrary. I have seen calculators that give you a better estimate based on your specific situation. Basically they ask you how many months expenses you feel comfortable with and then assume that every bad thing that can happen will during the time you are unemployed. So it asks for the deductible amount on your car insurance and the maximum out of pocket on the health insurance and adds those to the recommended amount. Can't remember what else it takes into account, but that is the general idea.

I personally have envelopes to save for "mini emergencies" such as a car break down and vet bills. I tried to estimate what I spend on those things each year and then put in 1/12th of that amount each month. Thus far, I have not had to pull extra from my EF. However, if something really major happend to my vehicle or one of my cats needed a major surgery, I would most likely have to partially fund that expense with my EF.

The 3-6 month recommendation needs to be adjusted to your specific situation. So the single income family with 4 kids probably needs a bigger EF than someone who is part of a dual income household with no kids. But in general having 3-6 months worth of expenses is a good starting point. Chances are you won't be unemployed for a long period of time, have a major car break down, have to send your dog in for major surgery, and suffer a hospitalization all at the same time, so in most circumstances you would have time to replenish your EF between emergencies.

[sweeps]

EF is based on expenses, not income. Expenses for a 4-child family are usually larger than expenses for a 0-child family, so the EF is necessarily larger. The 3-6 month range is there to account for risk. Single-income families are at greater risk, so 6 months is probably better. Dual-income families probably can get by with 3 months. But as skydivingchic pointed out, it's a rule of thumb, there are lots of exceptions.

[jIM_Ohio]

My primary emergency is loss of a job. In my case 3 months is enough, as I have a broad skill set which can get me employed quickly- I think.

In addition, I make lots of cash on the side (10-15k per year), so this cash gets saved and spent on big ticket items (car repairs, for example) if big ticket items are needed.

If I did not have the second moonlighting opportunity, I would want a 6 month emergency fund to cover large, unexpected expenses.

[Diolla]

So if 6 months is conservative then a 6 month emergency fund would be sufficient? ($6200)

My details are-
I am a single mother of one mostly grown child (18).

I own a small older home.

I own a 12yo car.

I am in fair health with a chronic health condition. I have a $1500 max co-pay on my HI

I am in a VERY secure work environment with 2+ months of sick leave/vacation leave (working on 6). I am not worried about losing my job even in an economic downturn.

The emergency I worry about most is a major breakdown at my home, my car getting totaled or getting sick and being unable to work for an extended period.

I am thinking that 6 months ($6k) is not enough. With an old house and an old car there is so much that can go wrong. I also have envelopes funded for regular things like car repairs and medical co-pays. I don't really think of them as emergencies, just life.

That's part of why I started this thread because I was curious what sort of things you think about when deciding on an amount for an emergency fund. I am a natural risk taker and this actually goes against the grain for me.

[LivingAlmostLarge]

Typically we have 3 months in cash. I also keep an extra month in cash on hand in the bank and am a month ahead. Now we're DINKS so I dont have extra needs, but we've been through a layoff where DH (Primary breadwinner) lost his job.

That was the only time we had a major emergency. Because we don't pay off the house, we keep trying to add to our taxable account. That is for stuff that happens. We'll pull from there.

The only thing we keep in cash is the EF, the rest we'll take from taxable accounts..

[boefixepa]

I look at my main EF for job loss....I have an account (envelope) I put money into every month for that and a goal I want to get it up to...about 20K

I have an 'home repair' account that I put money into every month...
I have a 'car repair' account I put money into every month...
I have a 'vet' account I put money into every month...
I have a 'deductible' account I put money into every month...

And a few other that I know are likely to come up at some point in time...I just don't know when. I also have goal vaules for these, once there I'd move the monthly imput somewhere else. If something came up more than I have in the account....then I'd have to pull from the EF. I know different people do it different ways, but this allows me the freedom to do home improvements, or large car maintence items (ie changing all the belts!!!) without having to worry about having the money.

[sweeps]

boefixepa makes a good point. In my opinion, there are lots of emergency funds -- basically accounts that you have separated physically or virtually in the event of an unplanned problem. When we talk emergency fund, we're usually talking about a Job Loss Emergency Fund. But there are others:
Car Emergency Fund (punctured tire, etc.)
House Emergency Fund (broken toilet, etc.)
Health Emergency Fund (co-pay resulting from broken wrist, etc.)
etc.

Note these are in addition to maintenance accounts. You can't expect your car tires or your house roof to last forever. When it's time to get new tires, it shouldn't be an "emergency".

This is definitely extra time and effort breaking out these separate funds, but if you can do it, it gives you much better budgeting analysis. You'll know when that $1,000 in your savings account is there to pay for roof repairs or whether it's "free money" and you can go on a shopping spree. Most people don't care... they see $1,000 and head for the mall.

[Caoineag]

Actually I am not really for having a separate emergency fund, I prefer having a savings account that covers the "unexpected or unplanned for expenditures." I include job loss, an extra bill from nowhere or excess expenditure to help out a friend, etc as belonging in that category.

Basically, if its something I can save for, it doesn't get to come out of the savings. The reason I don't like to call it an emergency fund is because that implies a level of urgency that seems inappropriate to me. After all, the fact that my husband's job security is low because he is in the mortgage field doesn't qualify as an emergency in my book, its a planned for potential situation. Emergencies are things that are life threatening, not something that can happen every 2 or 3 months. I know, I am weird, I have made peace with this :P

[Ingtar17]

Yikes! Looks like I have a bit of a looser interpretation of the term "Emergency Fund". Along with job loss, or totalling the car, I also include other semi-big unexpected costs, like the $700 it cost me to unsink my sunken stones on my front walk (I'm selling my house so it has to look nice). I've dipped into it also for things like eaves troughing (~$700) and car repairs (~$1000). Basicaly anything that is too expensive to handle with normal income or anything of significant expense that was unexpected. I keep about 3 months of income in my EF. Of course, if I have to dip into it I will start contributing again until I hit the 1 month mark. Maybe I'm too liberal with my EF - especially since we're a 1 income family.

[PrincessPerky]

I consider any out of norm expense to be 'emergency' though I do escrow some things, and plan on continuing the car payment once the car is paid off, for car expenses...also a house payment when the house is paid off...

And as to how much..that depends on how worried you are willing to be in case of say a job loss...or on how likely you think it will happen.

I worry less about having an emergency..so I will have to worry more should one actually occur..(though we are working on increasing the EF)

[DebbieL]

To me it's job loss or serious illness/injury. I would ultimately like to have 1 year's worth of expenses socked away, but I'm not there at this point.

[Ima saver]

To me an emergeny would be a hospital bill or the car breaking down and needing serious repair. I like to keep at least one year of income in my emergency fund. I have more in there now because building is so slow.