Three Month Emergency Fund

[EconoMutt]

I am trying to figure out how much I need for my three month's emergency fund. I took all my bills and debt payments and added them up.
I deducted one of my debt payments because it will be paid up by Feb. 1
Do I factor unemployment checks in the final total needed?
If so, does anyone know how much unemployment pays?

[disneysteve]

I would not factor in unemployment. Being out of work is not the only reason to have an emergency fund. An EF is also for large, unexpected expenses like a car repair, home repair, travel for family emergency, medical treatment, etc.

[wincrasher]

Unemployment benefits vary from state to state.

Generally it's 300-400 a week, but can be much less depending on your state. Go to your state unemployement office website to find out. In Florida, for example, you sign up and do your weekly check-in all online.

It also takes a couple of weeks before you get benefits, so factor that in. And they'll stop immediately if you find a new job - even if you don't report for a week or two!

Also, consider Cobra premiums in your calculations - it's not smart to go without health insurance.

In my view, a 3 month EF is woefully inadequate. The job market is pretty tough right now for most people. I'd factor in at least 6 months - possibly 8 months of your bare bones expenses, including food & utilities. But you need to figure that if unemployed, you'll cut out all the extras like cable, internet, magazines, eating out, etc.

Good luck!

[red92s]

I'll chime in here, as I have recent experience in establishing, and using, an emergency fund.

Unemployment benefits vary from state to state, and vary quite a bit. In MA, I maxed out the scale at about $620 per week, plus an extra $25/week from the stimulus plan. After taxes, that comes to about $550. In GA, the maximum is quite a bit lower (almost half). You should be able to find out the benefit rate in your state fairly easily, but you will typically need accurate pay information from the last three quarters to determine it.

As mentioned above, don't underestimate the costs of health insurance if you become unemployed and have employer-subsidized insurance. I was SHOCKED when I saw how much it would be to continue my coverage without my employer subsidizing it ($300/month). You gain get 65% off of COBRA coverage thanks to the stimulus plan, but I wouldn't count on that always being in place.

Someone mentioned above that job loss is NOT the only type of emergency. Sometimes job loss is paired with ANOTHER emergency, as in my case. I lost my job about a month ago, and then my car was involved in a serious accident and I had to fork out $1k for an insurance deductible.

I think equally as important as having an emergency fund, is having an emergency plan. In my case, I pretty much knew exactly what bills, utilities, and expenses I'd cut in the event of income loss. So the day I was laid off, I canceled digital cable, the gym, and netflix. The next day I started the process of moving out of my apartment and in with my brother to save on rent.

My emergency fund was about 6 months of my "normal" expenses. It is probably about 12+ months on my "crisis" budget.

[am_vanquish]

Also, consider Cobra premiums in your calculations - it's not smart to go without health insurance.

This is something we never accounted for in our EF planning, but a thread from last week got me thinking about it.

How exactly would I estimate the COBRA premiums? Is it just the amount of employer-paid medical benefits shown on my paycheck? Also, is the 65% stimulus discount applied just a flat rate, or is there some scale there?

Finally, should I consider the COBRA cost in my analysis/decision of which medical plan to participate in (switch enrollment ends in a week!)? Does the reduced premium during unemployment add value to the cheaper, high-deductible plans? Normally I wouldn't consider this, but the level of security in my job has dropped significantly since we've add significant layoffs each of the last 2 quarters & just announced a significant off-shoring effort.

Thanks.

[red92s]

This is something we never accounted for in our EF planning, but a thread from last week got me thinking about it.

How exactly would I estimate the COBRA premiums? Is it just the amount of employer-paid medical benefits shown on my paycheck? Also, is the 65% stimulus discount applied just a flat rate, or is there some scale there?

Finally, should I consider the COBRA cost in my analysis/decision of which medical plan to participate in (switch enrollment ends in a week!)? Does the reduced premium during unemployment add value to the cheaper, high-deductible plans? Normally I wouldn't consider this, but the level of security in my job has dropped significantly since we've add significant layoffs each of the last 2 quarters & just announced a significant off-shoring effort.

Thanks.

My paycheck did not have the information about my employers contribution to my health insurance. I'm sure the information was somewhere, but I never bothered to look for it.

COBRA just means you continue using your existing insurance plan, but pay the "group" rate (what you + your employer paid) instead of the "individual" rate. Their are other options, including short-term plans that are usually pretty inexpensive but have some important differences in what is covered.

There are some qualification criteria for the 65% COBRA rebate, but as an individual making $60k I still qualified when I lost my job. It's a straight 65% . . . not a sliding scale. Not sure how long it will be in place.

The most appealing thing about COBRA for me was that I could use the funds in my HSA account to pay the monthly premium. So instead of dipping into savings or unemployment income to pay the COBRA premium, I can use the $2400 I have accumulated in my HSA account through my insurance plan. You can ONLY use HSA funds for COBRA, not for the short-term policies mentioned above.

I wouldn't factor the COBRA costs into your decision making process during open-enrollment, but I'd certainly factor health coverage into your EF planning.

[zetta]

I think you'd have to ask either HR or your insurance company what the premiums would be if you were to go on COBRA -- it's not something normally displayed on your paycheck.

I wonder about this myself, as we've been told we've got one of the expensive "cadillac" plans that they're proposing to tax. When you go on COBRA, do you have an option of switching to a less expensive plan offered by the company?

[disneysteve]

When you go on COBRA, do you have an option of switching to a less expensive plan offered by the company?

I don't believe so. I think you have to continue the same coverage that you had while employed.

One thing to consider, though. Unless you live in a god-awful insurance state like here in NJ, it is generally far cheaper to buy your own coverage rather than take COBRA. Of course, that is only true if you are in good health. If you have any medical problems, COBRA might be the better option. It always pays to shop around and see what is out there before you make a decision no matter what your health status.

[cptacek]

I don't believe so. I think you have to continue the same coverage that you had while employed.

One thing to consider, though. Unless you live in a god-awful insurance state like here in NJ, it is generally far cheaper to buy your own coverage rather than take COBRA. Of course, that is only true if you are in good health. If you have any medical problems, COBRA might be the better option. It always pays to shop around and see what is out there before you make a decision no matter what your health status.

According to the wall street journal:

As part of the stimulus law, lawmakers also enacted a provision allowing laid-off workers to switch to cheaper health-care plans in Cobra, if their employers offer them, without having to wait for an open-enrollment period. That might also help some people who chose the more-expensive health-care plans offered by their employers when they had their jobs.
Stimulus Makes Cobra Coverage a Better Bet - WSJ.com

Agree with the other part, though. I got pregnant a while after I was laid off, so we were going to get him a high deductible plan (like $3000 deductible, 80% of the next certain number...can't remember, just that total out of pocket would be $10,000 at most, for $70 a month) and keep me on the old insurance. (You can do that...he just had to sign a paper acknowledging that he would not have insurance through them any more). The subsidy did help. I then got a job 3 months after my insurance was to be canceled, so we were never without insurance.

[disneysteve]

Didnt know about the stimulus thing. They keep changing the rules.

[cptacek]

I wouldn't have known if I hadn't just gone through it. I think it is a good rule change.

[amarowsky]

I think equally as important as having an emergency fund, is having an emergency plan. In my case, I pretty much knew exactly what bills, utilities, and expenses I'd cut in the event of income loss. So the day I was laid off, I canceled digital cable, the gym, and netflix. The next day I started the process of moving out of my apartment and in with my brother to save on rent.

My emergency fund was about 6 months of my "normal" expenses. It is probably about 12+ months on my "crisis" budget.

That is a very good point/action to take, an emergency financial plan. I never really thought of planning what is expendable and what is not. I guess it doens't matter to me to much because I don't have many non mandatory expenses. But to someone who lives a more lavish lifestyle, and experiences financial hardships, that is an incredibly useful plan.

[lucmas]

I would not factor in unemployment. Being out of work is not the only reason to have an emergency fund. An EF is also for large, unexpected expenses like a car repair, home repair, travel for family emergency, medical treatment, etc.