emergency fund?

[disneysteve]

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.

Your expenses will change over time

I agree that your expenses change over time. The 4% thing isn't really accurate, though, because just saying the inflation rate is 4% doesn't mean your expenses will increase 4% each year. Many of your biggest expenses may be fixed, like your mortgage and car payments. Our auto insurance premium drops a bit each year as our cars get older and less valuable. Other expenses may disappear entirely, like the payments for DD's braces which will end after the May payment, or a car that gets paid off.

So you do need to periodically revisit your EF needs. Sometimes you may need to increase the EF, other times you may find you can actually decrease the EF as expenses fall.

[Aleta]

Steve: I agree with you. I used the 4% figure the same way we do when we are figuring out what we need in retirement scenarios. I personally know that my costs have gone up more than 4%. That's why I said that each person needs to revisit the emergency fund each year.

I don't think that I would decrease it. Instead of 8 or 9 months of an emergency fund; I may have 11 or 12 months. In my husbands case, that is ideal since he is self-employed and without alot of benefits that some people have.

It is true, there is no one size fits all ideal. There are guidelines to go by and also what you need in there to sleep soundly at night.

[Ima saver]

I keep several years worth of cash in local banks right now.

[disneysteve]

I keep several years worth of cash in local banks right now.

We also have several years worth of expenses in savings, but it isn't all in the bank. Right now about 70% of our portfolio is invested in the market. About 30% is in bonds, CDs, MMFs, etc.