Is 3 months enough?

[Inkstain82]

When you are really living on little, what sort of emergencies are you going to have?

My monthly expenses that I couldn't cut in an emergency are a little less than $1,500, three months would be about $4,500.

We have a two-income family, so there's less risk of both of us losing our jobs. We also live in an area where low-paying jobs are plentiful and there's actually a major labor shortage (oil boom area of rural North Dakota). I could walk into Wal-Mart right now and get a guaranteed 40 hours a week for less than a dollar/hour paycut over my "profesional" job. I know I wouldn't quit my job, so presumably I'd be getting unemployment too, not to mention other sorts of aid if we needed it.

So $4,500 is plenty for "job loss" emergencies. What other emergencies could we have? We could buy a replacement for our current car with $4,500, so any repairs more than that wouldn't make any sense. The most expensive thing we own are our computers, each of which could be replaced for about $500, and I do all my own computer repairs for fun, so I don't think it'd cost that much to be fixed.

Any medical bills beyond what insurance covers we can pay in payments. That's what we're doing with the leftover costs of Mrs. Inkstain giving birth in August ($3,000, paying $300 a month). If there were truly massive medical bills, we'd declare bankruptcy.

We rent, so there's no worries about having to repair household stuff.

All in all, I'm pretty comfortable with three months. But that's just my specific situation. If I had more stuff and more to maintain, I'd need more. Granted, we do keep a little more than that, but that's mostly because I like seeing the shiny bank account balance.

[wincrasher]

Yeah, I know where you are. I had a company call me about a year ago and said "name your price". I multiplied my rate by 2.5 and they said OK can you be here on Monday!

Alas, I couldn't bring myself to brave your winters. They say you can't put a price on happiness. But I did.

[myrdale]

Personally, I made 6 months a goal. After that I quit worrying about it and I just kept sticking a little more back each month. Don't quit saving just because you hit a magic number.

[Scanner]

I really only have about a 3 month "emergency fund" but then again, my retirement money is contained in a Roth. . .if it was a "STAT" emergency, I could tap the contributions I guess.

(anyone who has every worked in a hospital knows there are "stats", anything the ER orders and then there are "stats").

So. . .define emergency I guess. I also have lots of credit - ranging from a business LOC to credit cards.

I'd probably do something like this in an "STAT emergerncy":

1. Tap 80% of the cash reserves
2. Tap 50% of the credit reserves
3. Tap into the Roth IRA contributions.

A $300 plumbing repair really doesn't sound like an emergency. Sounds like my house. That doesn't count in my mind.

[Inkstain82]

Yeah, I know where you are. I had a company call me about a year ago and said "name your price". I multiplied my rate by 2.5 and they said OK can you be here on Monday!

Alas, I couldn't bring myself to brave your winters. They say you can't put a price on happiness. But I did.

LOL. A lot of people feel that way, which is good for me, because I love it up here and it's what let me get a job in an industry where there are no jobs to be had.

I grew up in small towns, and this feels like any other small town. It's just that instead of 10 miles to the next town and 2 hours to the next city, it's 2 hours to the next town and 7 hours to the city (10 if you want a real metropolitan city and not just a really big town).

The winters are supposed to be not bad in this part of the state. Last year (my first up here) was awful, but everyone insisted that was the worst they'd had in decades. So far, it's very pleasant up here in mid-November, which is a good start.

The real issue is housing. It's virtually impossible to find a place to live. I know people who have been in hotels for over a year.

[Caoineag]

I currently have a 6 month ef (for 1 person in a 2 person household). I would like to eventually have a 1 year ef for 2 people but that is a long ways away because I have a lot of house repairs to do in the meantime. I consider 6 months the min because one of us is a full time temp worker which definitely means 6 months could happen in the worst case scenario.

[zetta]

Although I agree that most people need more than 3 months of EF, I thought I'd point out that once you get up to 6 or 12 months (or more!) of EF, you don't need to keep all of it in cash or money markets.

I'm comfortable with 5-6 months "bare bones" expenses in a money market, and then have lots of money in mutual funds in a non-retirement account that could be tapped after the money market ran out. Over time, if there is no emergency, this money will earn a lot more than if it were to sit in a money market.

[MonkeyMama]

Although I agree that most people need more than 3 months of EF, I thought I'd point out that once you get up to 6 or 12 months (or more!) of EF, you don't need to keep all of it in cash or money markets.

I'm comfortable with 5-6 months "bare bones" expenses in a money market, and then have lots of money in mutual funds in a non-retirement account that could be tapped after the money market ran out. Over time, if there is no emergency, this money will earn a lot more than if it were to sit in a money market.

Agreed. I don't look as an efund as "set it and forget it" as it seems bigger financial emergencies come with age. To me, it should always be growing - 3 months is the bare minimum. Of course, a large efund probably shouldn't all be in cash, unless liquidity is needed for many years' worth of expenses.

[watsoninc]

No, 3 months is not enough. Most people who lose jobs today are out of work for longer than that. Suze Orman has been preaching an 8-month EF for as long as I can remember. I think a minimum of 6 months should be everyone's goal and ideally up to a year.

I agree. This is the one area that I do agree with Suze. My wife and I keep a minimum of 8 months worth of our expenses.