How much for an emergency fund?

[ncbuckeye]

I've been struggling to figure out the right amount to keep in savings, and am open to anyone's advice.


Some background information:

My wife and I both work (no children), are young (24), and are in good health (God willing). Both of our cars are new enough that they should not require any major work barring an accident, and our townhome is in good condition. Our annual gross income is ~$75K.

Any thoughts?

[savingmama]

The general rule is about 3-6 months of your income. Some questions you have to ask yourself are what are your mandatory outgoing costs that you would still have to pay even if you or your spouse lost their job. You talk about owning newer cars that don't need a lot of repair, but what are your monthly payments on them or are they paid off, what about your townhome mortgage payments? Also, what about cell phones or gym memberships. These are things that even though you may be able to get by without, if you are in a term contract for them, you would still need to be paying on them if either or both of you lost your job. The other thing to consider is the stability of your jobs. The greater threat that either of you could lose your job, the greater need for a higher emergency fund. Hope that helps. Any money saved is better than nothing!

[disneysteve]

The general rule is about 3-6 months of your income.

That isn't quite right. It isn't 3-6 months of income. It is 3-6 months of expenses which is not the same thing.

Do you have a budget? If not, you need to sit down and make a list of all the monthly expenses you would have to pay no matter what, even if one or both of you lost your incomes temporarily. There may be things you could eliminate, like cable tv or newspaper delivery, but there may also be "luxuries" that you couldn't eliminate due to service contracts, like cell phones or gym memberships.

Once you know the bare minimum it would cost for you to get by, aim to save at least 3 months worth and ideally 6 months or more.

[jIM_Ohio]

I would say 3 months total expenses or 6 months of expenses for the higher earning spouse (if higher earning spouse lost job, 6 months of the expenses they cover).

If you do 6 months TOTAL expenses, I would suggest keeping 3 months in high yield cash, and investing the other 3 months in something with higher than a 5% return.

[Snowgirl]

We're doing a 3/6 months expense EF: 3 months if both of us lose their job, 6 months only one. A bit like Jim suggested, but we both have a comparable salary, and I think it is an acceptable compromise. A 6 months total expenses EF would be a lot for us to leave sitting aside.

[docstudent]

I keep a minimal of three months of reserve in case of an emergency (rent, car, and all other bills for the month, however, my goal is to establish enough to hold me over for six months all together. As suggested, I would devise a budget of your typically monthly expenses and start there!

[kilcher]

When you get that account be sure to put it somewhere (accessible) where it's earning decent interest (currently about 4-5%).

[aida2003]

[QUOTE=disneysteve;146696]That isn't quite right. It isn't 3-6 months of income. It is 3-6 months of expenses which is not the same thing.

I agree, E-fund must cover not income, but expenses.
I'd say you have to decide what kind of people you're. Will you be able to buckle up if one of you is laid off or gets sick? Or will you want to continue to dine out and get some silly gadgets. For some people, feeling down leads to more shopping.
Since we're conservative we've saved way way a lot, but that includes house repairs and taxes, car fund, monthly expenses for a year (this includes mortgage payments, too). So, that we do not need to go out and ask for a HELOC or home equity loan. We just try to stay away from debt, except mortgage.

[anonymous_saver]

My personal goal is to have 3 month of expenses before I buy a home. After I buy a home, my goal will be to build it up to at least 8 months worth of expenses. I make a little under $40,000/year.

[project15]

We are in the same exact situation as you and make about $88k. We have $12k in an emergency fund. Our monthly actual expenses (not savings or other money) is equal to about $3k. So we have four months.

I used to keep 3 months in an online savings account and 1 month in my checking account, but I just moved that extra month to the Online account since I have everything organized enough to not overdraft my account.

[jIM_Ohio]

The E-fund thing is relative to situation. I think 6 months expenses is steep to have that much in cash earning less than 6% year over year growth. If you don't have lots of money around, I understand the need for having some cash, but generally speaking, cash loses purchasing power over time, you will want this to work harder than even a high yield checking account.


Our EF right now is 3 $4000 CDs which mature every 90 days, with CDs spread out 30 days apart (so once per month a CD matures, then rolls over to another 90 day CD). We have only had this money for last 6 months or so.

$4000 which covers house payment for a month, plus some utilities. This lasts for 3 months if one spouse loses job.

The caveat is I will be opening a mortgage pay down fund real soon. Meaning I put around $1200 each year into this fund, which I expect to return about 8-20%. Once this fund hits $12000, the need for the $4000 CDs goes away. Nice to have cash around, but that $12k will probably be spreadout into 2k Cds in a 6 month ladder, for example.

If the market drops, the interest from the CDs will be added to a taxable investment. Market must be 20% from it's most recent high to liquidate the cash. Only will buy low. Each year the CDs should generate $500 in interest if I have figured things out correctly.

[Ima saver]

I try to keep 6 months to a year, because we are self employed. Right now, is not a good time for builders!

[mom-from-missouri]

We do like Ima 6-12 month expenses. We call that our lost job fund. But, we don't consider that our EF. Our EF is what we use for unexpected troubles--such as $ for an out of town funeral, or auto trouble, or something of that nature. I don't know, maybe we just have 2 EF?? and big and smaller one...

[kendo26]

3 to 6 months expenses should be save for an emergency fund. I currently have 3 months saved working towards 6. I have the money in an ING account.

[cantretire]

I've heard 6, preferably 9 months of expenses. I'm aiming for the 9. I've been unemployed before and it's petrifying. I don't want to go through that again.