emergency fund?

[maat55]

It can depend alot on the emergency. If you were to have a serious medical problem causing your job loss, it could add up more costly than normal. Having disability ins. would come in handy in that case.

[jIM_Ohio]

I have alway hated the one size fits all 3-6 month of expenses.

I figured my EF on several factors-

1) I have a very secure job and could cover my basic needs on an $8 an hour retail job. (Lost job $2000 maximum needed, however if it is because of illness I would need 6 months plus health insurance until LTD kicked in $10,000)

2) I own a home so major breakdowns could happen (Sewer collapses $8000 needed)

3) I have a very old car (Car replacement needed $6000 for used vehicle)

Therefore worst case scenario I would need $10,000 (but not all of it immediately) so I have $6000 in a MM and $4000 in other investments (I could tap into over time) I have excellent credit so I could use that until the money was available.

Each situation is unique and should be looked at individually. It really is just the amount that lets you sleep at night.

Another way to tackle this is to budget for a new sewer or new car by looking at life of object, cost of object, and adding that to budget each month.

For example, new hot water heater every 10 years. Cost $2500. 10 years*12 months =120. $2500/120= $21

new car every 10 years. Cost $35,000 (includes maintainence and inflation on car). $35000/120=$292/month

new HVAC every 15 years cost $3500. 3500/180=$20/month

new roof every 20 years cost $5500. $5500/240=$23

add these up ($23+$20+292+21) and set this aside each month in EF or similar. $356 per month.

When working and in a new house, most people will only be dealing with car, but as you get closer to retirement it is important to account for all "random and semi annual costs" in a budget because a fixed income needs to account for these things. If HVAC and Roof go in same year, that would deplete EF considerably, so considering these things as money spent is an important retirement budgeting tool.

[tripods68]

My personal goal is about 8 months of expenses for an emergency fund. This would include emergencies such as getting fired from a job, but also if (once I buy a house) if our stove quit working, and we need to buy a new stove. Or if one of my pets get sick and needs a surgery, etc.

So far we have managed to save 1.5 equal to our monthly expenses. Our goal is 6 months EF or 28K by next year. Anything above 6 months would be extra to use for car or home repairs, plane tickets, etc. Otherwise it will remain 6 months. We also have separate account that funds our vacation and property tax yearly. So far we haven't had to touch any of these accounts for anything other than its intended purpose.

[PrincessPerky]

Each situation is unique and should be looked at individually. It really is just the amount that lets you sleep at night.

Ditto that!

Though there aught to be some sort of minimum, there really is no hard and fast rule for all the world.

[Fizgig]

I feel most comfortable with 6 months of expenses in the bank. It makes sense to keep some of that in investments, but I feel better having it liquid so that I wouldn't have to sell off stocks. It's one of those things where the mathematically correct answer doesn't sync up with piece of mind, but that's okay. I keep it in a higher interest online bank.

[jIM_Ohio]

I feel most comfortable with 6 months of expenses in the bank. It makes sense to keep some of that in investments, but I feel better having it liquid so that I wouldn't have to sell off stocks. It's one of those things where the mathematically correct answer doesn't sync up with piece of mind, but that's okay. I keep it in a higher interest online bank.

Moderate does not mean stocks (to me). Bonds or other stable value investments are available.

[cantretire]

I'm using my monthly take home pay as my base figure, even though I could reduce quite a bit of expenses in an emergency. I'm aiming for 8 months and am at about 4 now. I figure in an emergency, with no other income, I could probably stretch it to 5. If collecting UI or disabilty, i could probably stretch it to 7. When I hit my goal of 8 months, I think i could stretch it to a year if needed.

I'm spreading it to 1/3 in an online bank account and the rest into short-term CDs. This way I can get a little more interest but still have access when I need it.

[garilon]

Why aren't we talking more about having insurance? an emergency fund is great, something you shouldn't be without but it can't replace having decent insurance. Wouldn't you rather have your insurance to tide you over the emergency and keep your nest egg than have to use up your hard earned savings. You should insure against sickness disability, redundancy etc. When I was made redundant I was so thankful to have had the insurance in place - it allowed me to continue a study course full time (previously I had been doing it part time) and I got a better job as a result, my mortgage was paid in the mean time and I kept most of the savings I had.

[disneysteve]

You should insure against sickness disability, redundancy etc. When I was made redundant I was so thankful to have had the insurance in place

What is redundancy and how does one insure against it?

I totally agree with health and disability insurance. Next to job loss, the other common reasons for loss of income are illness/disability.

[Aleta]

Do not look at your gross pay, look at your take home pay. If you insurance is deducted out of your pay, you should include that in your EFund. An emergency fund is for necessary expenses, not savings, etc. Each person's jobs will determine what you need. If you are self-employed - you will need more months than most people. I think that you start out with let's say - 1 month and each goal should be to increase to 2 mos. etc. until you are where you feel comfortable.

Budgeting each month for items such as a purchase for a car, car repairs, home maintenance, medical deductions, vacations, gifts, holidays should be a part of your monthly budget. In the beginning you may need some of your emergency funds to pay for an UNEXPECTED expense.

I have two emergency funds. I have cash at home because I live in a hurricane prone area and have lived through banks not operating during those times and I keep my emergency funds in money markets, savings accounts, and CD's. You want that money to be accessible when you need it.

I do not like investing emergency funds in the market. If you haveupir emergency fund fully funded; you can then start investing in some kind of funds such as index funds, etc.

[jIM_Ohio]

redundancy=downsized=RIFFED

[Snave]

I think I have said something like this everytime EF's come up. Once you get to an amount that is a good deal more than your EF, then I would suggest investing a good portion of that money rather than having it sit in a money market account earning a few %. If 3-6 months of income is 25K, and you get to 30K, then I would keep 5 in a MMA and invest the other 25K. I know others will disagree, but I have rarely had a significant emergency that the 5 grand couldn't cover. The other 25lK could be in a mutual fund earning singificantly more interest. You could always pull it if you need it. I also know some will say that you could then be selling it at a bad time and at a loss. Well, if I didn't have an emergency for a few years and it was earnig 9-10% as oppossed to 4-5, then I am ahead! It is all probability and as I said, I have rarely had an emergency that is that significant.

[maat55]

I've never shopped for disabillity ins. Dave say's it's a must. What's the going rate for a non smoker, 45 in good health? I'm not sure any of that matters. If you have it, how much are you paying?

[maat55]

I think I have said something like this everytime EF's come up. Once you get to an amount that is a good deal more than your EF, then I would suggest investing a good portion of that money rather than having it sit in a money market account earning a few %. If 3-6 months of income is 25K, and you get to 30K, then I would keep 5 in a MMA and invest the other 25K. I know others will disagree, but I have rarely had a significant emergency that the 5 grand couldn't cover. The other 25lK could be in a mutual fund earning singificantly more interest. You could always pull it if you need it. I also know some will say that you could then be selling it at a bad time and at a loss. Well, if I didn't have an emergency for a few years and it was earnig 9-10% as oppossed to 4-5, then I am ahead! It is all probability and as I said, I have rarely had an emergency that is that significant.

I have 10,000 in my HYS and I think I will let it grow to 15,000 on it's own, then invest the growth.

[Aleta]

One other point to think about is that the emergency fund amount will not stay at the same amount. If you have $25,000 in your EF, you would want it to grow by at least 4% a year in order to keep up with inflation. You would need for that account to earn $1,000. (4%) for growth, making it a total of $26,000.

I reevaluate my expenses each year to see how much I need to have there. There have been some years when the interest rate was low, that the account wasn't earning that much.

Your expenses will change over time and you will want to revisit that account and maybe add to it. Hopefully, laddering it with CD's will give you a better rate of return.