Emergency Fund amount

[mrpaseo]

If I have a $3,100 monthly budget, and I have $3,483 guaranteed monthly income, what should I keep in my emergency fund?

I know they say 3-6 months of your bills to cover you in the event that you lose your job. Thanks to some careful planning, my Army retirement covers my monthly expenses. That said, what is a solid "Emergency fund"?

I'm thinking about $5,000 to cover any major auto repairs or unplanned expenses. Do you think this will be enough?

All opinions welcomed.

[BMEPhDinCO]

I would suggest...

enough to cover any medical deductible
enough to cover any auto deductible
enough to cover 1 month expenses (in case any checks get delayed)
enough to cover 1 big household repair (ie, we paid $1,100 for a furnace repair)
enough to cover 1 flight to/from family

So for example, if that was $1000, $500, $3,100, $1100, and $500... then you'd want $6,200 and I'd probably round that to $6,500 since I like numbers to be $0 or $500. Your numbers would vary with whatever those amounts are for you. I would make sure to cover all those situations at once as they could happen, although hopefully not!

[Esozh]

Army retirement is nice, but I still think you need to have more than that, even if it is guaranteed. I'm assuming your still working? If I woke up in your shoes tomorrow, I would want $20,000 in an Emergency Fund, then enough of an income to cover my expenses, and not rely on the military pension until later in life (60+). That's just me. Use it to build an EF and then throw it into investments or pay off your mortgage. That's just my two cents.

[bigdaddybus]

I keep 2 months in a cash emergency fund and another 4 months in an investment account. (This money never gets liquidated for vacations, car purchases, new fridge, or any other wants we come up with. It is the minimum balance in my non retirement stock trading account)

So with the numbers you provided I would feel comfortable with $6200 in cash and $12400 in easily liquid investments for a total of $18600 as a minimum emergency fund.

ex. In my case, scottrade takes 2-3 business days for sales to go through then I can use my scottrade checkbook to pay whatever emergency expense that comes up. I like this option as you have limitless options of varying risk for investing the money. And I can manage it all from my home computer or smartphone.

[mrpaseo]

BMEPhDinCO, thank you for your input. I agree that there should be some money aside to cover expenses such as what you listed but do you feel covering them all at once is necessary? (Meaning do you feel there is a probability that these will happen all at once?)

"enough to cover any medical deductible: $1,000
enough to cover any auto deductible: $500
enough to cover 1 month expenses (in case any checks get delayed): $3,100
enough to cover 1 big household repair (ie, we paid $1,100 for a furnace repair): $1,100
enough to cover 1 flight to/from family $500"

That said, $5,000 should cover any and all of these issues in my case.

Medical deductible: We have Pri-care prime for life (Until 65) Emergency room visit is $30, everything else is less. Our monthly payment is about $45, meds about $50 (All included in the budget above).

Auto deductible: $1,000 (All vehicles are paid in full)

1 month expenses (in case any checks get delayed): $3,100

1 big household repair (ie, we paid $1,100 for a furnace repair): This one can be anywhere from $1,000 to $10,000 I think. We just had the roof replaced (With a 30 year shingle about 2 years ago). We have a monthly allotment of $100 to cover maintenance of the house (Included in the budget).

1 flight to/from family: Thankfully, both of our parents are within driving distance (Well 16 hours one way...lol) $500

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Esozh, thank you for your response. I am not working, happily unemployed (As in not looking for a job). I respect your opinion but feel $20,000 in cash is excessive.

In reference to not relying on my military retirement income, I understand you are referring to maximizing income (Work while I am still young rather than not work and live on the retirement income). My wife and I have planned for this many long years now and it works for us. We are humble people and do not live extravagant lifestyles.

We have our retirement portfolio in effect (To include her 401k and ouR ROTH IRAs) and our mortgage is paid in full.

We also have a HELOC available and a few CC's that could cover an emergency until we could liquidate some assets to pay off the bills. We do not usually carry balances on any CCs but we do have a balance on the HELOC though we have not drawn on it in a few years, we pay monthly on the HELOC and do not plan on drawing on it (Meaning that we are not planning to use the HELOC or the CCs as our emergency fund, we have not ever done it, but they are there in case of extreme emergency).

__________________________________________________ ________________________________

bigdaddybus, thank you for your response.

Truthfully, we have always dipped into our Emergency fund. It's more fluid than what most people consider an emergency fund. I have an allotment set up to contribute into the fund monthly and when I need some, I transfer the money out. The reason I am asking the original question is to set up a solid (Not touched) emergency fund.

As you described, I have $5,776.78 easily liquid able and some collections that I could part with that could bring in about $20,000 if I had a fire sale.


Thank you all once again for your input, you got my brain working to ensure I have most issue covered.

[Like2Plan]

mrpaseo,
I am not convinced the budget "theater" is done, yet. I would suggest at least 3 months and maybe even 6 months expenses.

[Petunia 100]

Wow, it is impressive that you can live on ONLY your military pension! Great job.

I think that 5k is plenty in cash IF you have plenty of available credit and investments which could be liquidated. My reasoning is that even if several unexpected expenses crop up in a short period of time and they exceed 5k, your credit card will immediately cover them, and you have 30 or so days until you must cough up the cash. That gives you time to decide what particular investment you wish to sell to replenish the E fund and pay off the card.

While it is possible that you could face this (selling investments for E fund and credit card balance) once or twice, it is unlikely that you will face it often. If you do face it even once, you might consider bumping E fund up a bit.

[snafu]

mrp, I think you need to base your EF on personal experience. I'm guessing as retired military, any medical emergencies are covered. I've set $ 3,000. as a 'don't touch' sum but have other sums primarily tagged for other projects that could quickly be re-prioritized. Some emergencies like a flight for a funeral of beloved brother booked on-line had to go on a CC. Hotel reservations likewise need CC. Fortunately, should we have a medical emergency our insurance covers at home and abroad. A non retirement investment account, easily liquidated backs up our finances. I believe there is a lot less risk in an Index a/c than in a savings instrument that fails to keep up with inflation.

Most important, you need to be able to sleep at night without worrying about your money.

[Jerry91]

Like Dave Ramsey says, an emergency fund is a rainy day fund, an umbrella. The amount that you save in your emergency fund will vary and depend upon your financial situation. If you are paying off a high interest debt, then even saving $1000 in your EF can be of great help. But you're paying low interest debts and have a better financial situation, you can increase that amount. Also, if you have dependants, then a general rule of thumb is to have 1 month of living expenses for each dependent in your life.

[Gailete]

enough to cover any medical deductible
enough to cover any auto deductible
enough to cover 1 month expenses (in case any checks get delayed)
enough to cover 1 big household repair (ie, we paid $1,100 for a furnace repair)
enough to cover 1 flight to/from family

I find these interesting uses for an 'emergency fund'

Medical deductible--I've gone to lots of doctor visits, hospital surgeries, ER visits, and so has hubby. We have never once had to come up with cash on the spot. So for many people unexpected medical problems will cause for a need for cash to pay for them, but not usually for several weeks when the bills start coming and you still usually have several weeks to pay.

Auto- well if you have an unexpected repair, yes, you might need cash (or a credit card, depending on the repair business). New tires, yearly inspections aren't emergencies.

Household repairs, unless it was due to a tree falling on the house, is also generally a repair that is anticipated. A new roof, a new fridge when you can tell they are going bad, these are things to be savings towards. I do know that when we needed the septic tank cleaned out after a way too wet spring (didn't have a hint of problem till then), we had to hand over a check on the spot.

A flight to and from a family emergency, well some of us live near family and others wouldn't fly anyhow for these things so it really depends on you. A major illness or death are the only 2 reasons that I can see for doing this, not a wedding, vacation or occasion like that, as that is again something to save for.

Check not arriving when it should. Most government checks get direct deposited these days, so I would assume a GI retirement check would be as well. That would be a truly rare occurrence. Maybe not so much from private retirement accounts. Every year I get some statement telling me about all the trouble my ex's retirement account is in. I get just less than $100/month which is nice, but it if doesn't show some day, I doubt it will break our bank.

Things like Hurricane Sandy, Katrina, and unexpected need to relocate on a moments notice is a true emergency and needs real cold cash to help in those instances that and a fully packed flight bag.

Christmas is NOT and emergency and shouldn't be treated as such. It comes every year. If cash flow is tight some Christmas, that is the year to have a heart to heart with the family and find all the fun free/cheap things to do to celebrate the holiday. Too often though I see people treating Christmas like an emergency.

The original poster seems to really have his head on straight (along with his wife) about finances and I applaud them. I doubt that even with an EF of around $5000, I doubt he will ever have to tap it. The better you get yourself financial situated, it seems the less financial emergencies you end up with. Our income took a $5-10,000 jump this year and I can't believe the difference it makes to have the money when we need it for bills, and to be able to set some aside so that we can handle the bills and save money as well. Suddenly the 'emergencies' seemed to vanish. When hubby came in and told me about how much the septic man needed, I just paid the bill and didn't blink an eye. We had the cash

[karenjcarlson]

$10,000

For peace of mind, I would keep $10,000 in your situation