Emergency Fund Question

[Wino]

I've been thinking about my emergency fund. Specifically, how much should I keep in it?

I've heard several trains of thought. Dave Ramsey recommends "3 to six months of expenses." I've also heard hard figures such as $5000.00 to $20,000.00. I can't do DR's method, because most of my expenses are paid; basically I only pay food and entertainment, so six months wouldn't come to $3000.00. There's no way I'd leave that in the account.

In my case, it would be a "fired from my job" fund, as I can't see a food or entertainment emergency coming up. We have no debt, except the mortgage, and the mortgage will be paid off well before 2014. Moving back to the US is covered in my contract (even if I'm fired for cause), and we didn't bring anything that we'd have to take back, except for the dogs. If we pay someone else to return the dogs, it will be about $4,000.00. We could do the dogs ourselves and it would be about $2500 instead (vet bills, certifications, and tickets). So, mostly we have our house in the US if it needs repairs, but it's in tiptop shape, with new AC, roof, windows, etc. I keep it in good shape due to past experience that tells me it's cheaper to keep everything working rather than to fix things that weren't maintained. I even change the brake hydraulic fluid in my car every year, if that's any indication how anal I am about doing maintenance.

As a side note, my wife's pay goes directly into a side account. We don't even count that money, but if we really needed it, I guess that could be an emergency fund; though I'd prefer to keep ignoring it.

So, assuming basically no expenses, if you were in my situation how much would you keep in savings for emergency spending?

[kork13]

Another term for an emergency fund is a "peace of mind fund." Basically, it serves as a backstop to anything unexpected that might come up. So the question becomes "How much would you want on hand to give yourself peace of mind?"

One option would be to just keep 3-6 months of what your expenses WOULD be if your expenses were not paid by your employer. Or, you could just keep 3-6 months of INCOME (vs. expenses) as your emergency fund. Alternately, just pick a figure that makes you comfortable. Consider, for example, that for a median family household earning $50k/yr will probably keep an EF between $15k-$25k.

In the end, the dollar figure itself isn't what matters. It's more important that you have SOMETHING there that can provide for whatever life throws at you. I've lived overseas for most of my life, so sometimes the biggest thing to worry about (besides a job-loss) can be a family death or illness -- then you have to buy last-minute plane tickets, which can easily be a $1500+ venture per person, plus hotels, food, ground transportation, etc.

[UnknownXV]

Just to note, was the 3,000$ figure you pointed too high or too low for you?

In your situation, if your monthly expenses are quite low with the mortgage soon to be paid off, you really don't need a large emergency fund. That said, the fund isn't only in the case of being fired, but for other issues. Emergency repairs on a house, car, unexpected medical bills, etc...

I'd recommend at least $5,000 so you're covered for almost any single event. Maybe also keep some investments in a mutual fund or something that is semi-liquid, not too hard to get to if you need it fast.

[Wino]

UnXV, $3000 would be too little for my tastes. I have been thinking along the lines of $12,000.

just keep 3-6 months of INCOME (vs. expenses) as your emergency fund. Alternately, just pick a figure that makes you comfortable. Consider, for example, that for a median family household earning $50k/yr will probably keep an EF between $15k-$25k.

That seems like quite a bit of money to hold in an account that's losing value to inflation. Contrarily, six times my monthly income would be too much to hold in a savings account for no reason, I think.

Maybe also keep some investments in a mutual fund or something that is semi-liquid, not too hard to get to if you need it fast.

This is what I was thinking, as well. I have a few semi-liquid mutual fund accounts. Can I cheat and call those an emergency fund, knowing that I have the $12K in savings/money market?

The reason this came up is a friend who was as secure in his job as anyone could be was recently fired for cause. Basically, he was talking to a group of people about his project and a reporter was in the group listening. He said some things that really shouldn't have been said, and when his CEO heard about them - from the customer, who had read the article subsequently published - he was terminated immediately. So, I started to consider my situation.

I have been cash-flowing minor emergencies without a firm emergency fund. My local account plus US account plus "transfer accounts" usually add up to the $12K figure, more or less, but they aren't "formal" emergency funds. As I'm overseas, I have three basic accounts that I use: My Dubai account for direct deposit and day-to-day living; my US account for US-based bills; and my "alternate transfer account" that is really two accounts - one in Dubai ($1K), and one in the US ($1.5K) - that are set up to allow me to cheaply move money from the other two accounts; these two accounts are with the same bank which has branches both in the US and in Dubai. The figures in the "transfer account" are minimums to allow me to keep the accounts without any fees.

So, can I continue to "cheat" and say my day-to-day accounts are an emergency fund, or should I designate one of them the "emergency account" (thinking the US-side of the transfer account would work for this) and store an additional $12K there, keeping the cash-flow accounts at their present levels for "working" transactions?

Aside: The US account for bill paying will be terminated once we get the billing transferred to the US side of the transfer accounts. We really aren't in any rush to do this. It's just on the "to-do" list. I'll probably hold that account another year after "completing" the bill transfers just to make sure there's no stragglers that won't get paid because we had an "oops moment" and forgot about some annual payment like flood insurance or some similar out-of-sight-out-of-mind bill being drawn from that account.

[jpg7n16]

UnXV, $3000 would be too little for my tastes. I have been thinking along the lines of $12,000.

And how'd you come up with that number?

This is what I was thinking, as well. I have a few semi-liquid mutual fund accounts. Can I cheat and call those an emergency fund, knowing that I have the $12K in savings/money market?

That's not cheating, that's the plan

If you feel that you would like to have funds beyond what is neccessary for 3-6 months, of course, keep extra on hand -- just not in cash (or the equivalent account ie. checking, savings, etc.).

Keep as much in cash equivalents as you need to cover all necessary expenses should you lose your job and have to live on the cash for 3-6 months. Beyond that, use some form of investment in a taxable, readily accessible brokerage account. Preferrably a very liquid investment such as mutual funds, ETFs or treasuries/TIPs.

[disneysteve]

So, assuming basically no expenses, if you were in my situation how much would you keep in savings for emergency spending?

Just because you don't pay most of your expenses doesn't mean you don't have expenses. I would stick with the usual 6-months of expenses advice. How much would it cost you to live for 6 months if your income stopped tomorrow? If you suddenly became responsible for all of your expenses, what would that mean in dollars?

[Wino]

And how'd you come up with that number?

I pulled out of my a... the air. I just figured "well, $12K is enough for eating and utilities, I guess."

Just because you don't pay most of your expenses doesn't mean you don't have expenses. I would stick with the usual 6-months of expenses advice. How much would it cost you to live for 6 months if your income stopped tomorrow? If you suddenly became responsible for all of your expenses, what would that mean in dollars?

That's not completely realistic, though. If I had MY money paying for where I'm living, there's no way I'd spend the same. Think about what's going to happen with Obamacare. I was in the military, and I saw wives taking the kids to the doctor for the most minor things, because it was free. The same will happen with OC. People will go to the doctor for aspirin or Ace bandages, because it's "free." Well, right now, my housing and car are "free" to me. I also wouldn't even be living in Dubai, were I not working here and having my expenses paid by the job.

I do see your point, though. Scale back to "what would I be paying for expenses if I were paying them myself" and base my EF on that. I would need to "imagine" the house and area I'd be living in, were I not in Dubai, as well as "guess" what my utility bills would be. We're planning to buy when we get back, though, both car and house. I guess my EF will become my "return to the US fund" and DW and I are already working on that figure and fund. Housing prices are already going up since we've moved here, so the house we want has increased in selling price by a minimum of 10% since our departure from the US.

If I looked at actual "survival expenses" I wouldn't even need $15K for six months. My house will be paid for shortly, I own my car, I've upgraded everything on the house, energy-wise, and food in TX isn't that bad. Assuming property taxes falls into the "six months" as well as insurance payments, I think I'd be approaching $12K, so $15K will probably do for us. Do you think I should put that into a stand-alone fund, or just count it as part of the "move back to the US" fund? If that's what I end up doing, then we're already covered. I have the money currently in a mutual fund, since we won't be needing it for a few years (and if I take a hit, I take a hit; my risk tolerance is extreme).

[Tree0164]

I think it is personal thing-my security gland is quite large. We dealt with 8 months of unemployment back in 2009/2010 that really stressed me out. Luckily we had 6 months of living expenses in our emergency fund that I was able to stretch with unemployment dollars as well as myself working a bit more. When my husband got a new job we were only at 3 months left I have worked us up to 8 months now and may end up at 12 months.

[bUU]

My employer pays for my health care and I assure you I don't go to the doctor for every little thing. As a matter of fact, I make up whatever rationalizations I can think of to not go to the doctor for even real problems!

[ablet110]

Emergency Fund

As you described emergency fund. We always keep this type of fund in the emergencies situations. But sometimes we expenses more on our needs when we have to spend this fund.

[QuarterMillionMan]

Just because you don't pay most of your expenses doesn't mean you don't have expenses. I would stick with the usual 6-months of expenses advice. How much would it cost you to live for 6 months if your income stopped tomorrow? If you suddenly became responsible for all of your expenses, what would that mean in dollars?

Bingo! disneysteve nailed it! Preferrably I'd take it up to 8-12 months of emergency funds for all or your expeneses but that is just me. Personally I'm up to more than 12 months and trying to attain more. It gives me peace of mind. I'm grateful to the Lord for the blessings & know what he giveth he can taketh away in an instant.

[Diavel_guy]

I think this is a very personal question that ultimately only you can answer. That being said, it's good to hear other people's logic on here to help decided what's best for your own personal circumstances. How stable is your health, job, etc. among many other things all play into how big it should be. And of course in the end even under the best circumstances life can throw an unexpected curve.

For me I would want at least a year in my EF. But that's what makes me feel warm and fuzzy when I go to bed. Your mileage may vary : ).

[lhkorn99]

Just because you don't pay most of your expenses doesn't mean you don't have expenses. I would stick with the usual 6-months of expenses advice. How much would it cost you to live for 6 months if your income stopped tomorrow? If you suddenly became responsible for all of your expenses, what would that mean in dollars?

Agreed - you never know what can happen and even keeping 12 months worth of living expenses is wise.

[Wino]

Thanks to everyone for their advice, so far.

Now, to put a twist on it, and to do a bit of forward-looking hypothetical thinking.

Let us assume my primary mortgage and all other debts are paid off. The mortgage will be paid off within this calendar year, so this is not a far-off hypothetical. Also, retirement funds are inviolate and will continue to be funded fully over and above this hypothetical. They "don't exist" for day-to-day discussions.

I plan to use a mutual fund to sock away money for another house fund (second house fund = SHF). This will be a new account that does not yet exist.

Assume I have $10,000 in cash among four checking accounts. I have four accounts for legitimate reasons:

1. Primary local overseas account - set up by my employer; direct deposit; no US branch
2. Primary US-based account for paying US bills - long-held account for auto pays and primary banking.
3. Local overseas account for transferring money from here.
4. US account in same bank as #3 for receiving money from #3, for transfer to #2.

I realize the above could be simplified. I could close accounts #3 and #4, and draw down the other two to minimums, so I should have at least $8000 available if I really, really, really needed immediate cash. Investments are done out of account #2 once bills are paid. Usually, we keep about 2 or 3 months of non-investment payments in acct #2 as a cushion.

DD2 puts her rent into acct #2, but that really only covers taxes and utilities which still come out of #2. They're in the house for mutually-beneficial reasons: They get to live in a nice place at low rent while saving for a down payment, and I get renters who will keep the yard and house in good shape without me needing to inspect it quarterly. The house is about as emergency-proof as could be due to my anal-retentive maintenance work on it. The only outstanding issue is the plumbing, which is not an emergency, as I know it will need to be upgraded soon. Estimates range from $8K to $12K for everything needed.

I really don't have an "emergency fund" per se. My job is as secure as one could expect in this day and age, and my marketability is probably better than 99% of the US. Basically, unless there is an asteroid strike or global depression, I will most likely remain employed.

I am very healthy. My father is 78 and my mother is 75. Both are in great physical shape, though mom is showing signs of dementia. I take after my maternal grandfather is most respects. He died in his early 60's due to smoking and drinking. I don't smoke. I do drink alcohol, but not in excess.

Now that I've set up the scenario, my hypothetical question: When I start using my extra cash for the SHF, does anyone see any reason I cannot call that money my "reserve emergency fund" and leave everything else static? Am I taking a chance by not having an "emergency fund" of cash equivalents set up solely for a shock absorber? The "slop" in my finances has worked as a cushion when needed for the last few years after I returned to normal from my "give a hoot" days in depression and retail therapy.