What do YOU consider the ideal emergency fund?

[neatdesign]

If someone says that you should ideally have "a six-month emergency fund" -- what does that mean to YOU?

Do you interpret that as six months' worth of:
* Your gross income?
* Your take-home pay?
* Your average cost of mandatory expenses -- and, if so, which expenses?

Do you think six months' worth is enough? Should it be more? Can it be less? Or does that depend on how you interpret the above?

OR do you think your emergency fund should just be a fixed amount of cash set aside? For example, Dave Ramsey says you just need $1,000 in case of emergency. Personally I think that's unrealistic, especially since he ALSO tells people not to have any credit cards. Honestly, $1,000 won't get you very far in some situations. But if the fixed EF is $5,000 then that might be okay.

What do you think?

[disneysteve]

First, Dave Ramsey does not recommend a $1,000 EF. He recommends 3-6 months of expenses just like everyone else. Well Suze Orman recommends 8 months.

I consider an EF to be based on expenses that must be paid. This can include both needs and wants particularly if there are contracts involved.

[MonkeyMama]

I think a rule of thumb is a rule of thumb, so doesn't really mean much. Depends on your personal circumstances.

I've personally never had less than $5,000 cash, and I think that is a good basic emergency fund. (I agree that $1,000 is probably useless). With only $5,000 I felt a little nervous...

Having a house, a family, only one income, and given the economy, and being fairly anti-debt, I feel comfortable with a MUCH larger cash cushion than recommended. That said, we have usually always had cash savings for specific purchases, which acts as a backup emergency fund. Early on was a house down payment we were saving up. Right now we have cash to replace both our cars (in a significant emergency situation we'd downgrade our cars or buy something more modest next time). & so on...

I probably consider about $15,000 of our cash for "emergency purposes" that I would not touch outside of an absolute catastrophe. That is 3 months or 4 months of expenses (actual/current expenses). But, we've generally always had 6-12 months of "net income" on hand, considering other cash available. I'd feel comfortable with more given the economy and my job situation, but that's kind of the catch-22. We had much more cash on hand, more easily, when the economy was thriving more. Which has helped us significantly through leaner times.

If I was a single, childless, car-less renter with a very steady job or career, I am not sure that I'd have much need more more than $1,000 or $5,000 cash on hand.

[kork13]

I think MM hit the mark very well -- It depends alot on your situation. Someone with very few obligations and secure employment would not be as much of an emergency fund. But if you've got a house, kids, a business, and a variety of financial obligations/contracts, you're going to need a beefier EF.

Personally, I fall in the middle. I'm comfortable with anywhere between 4-6 months' expenses, and I consider "expenses" to be basically my entire budget (taxes and discretionary spending included) less my savings allocation. I'm not *quite* to six months yet, i'm technically at 5.5 months right now (slowly building up the last $2k), but I'm totally comfortable with what I've got, and see little need (at this time in my life) to have an excessive amount of cash available. With that said, if I was running a business, I would probably want at least a year's expenses in cash to deal with the unexpected better.

[dojo]

It really depends on the situation/income/country etc.

I think ideally WE SHOULD HAVE an emergency fund. That's to start with. 3-4 months covered would be great at first (especially when you're building said EF). Then up to 12 months I think would work pretty nicely.

The main issue for many families is to 1. start saving some money for such a fund and 2. (more importantly) not squander the money on non-emergency issues (getting that big plasma TV is not an emergency )

[HappySaver]

Agree that there isn't a one size fits all approach. Owning property increases your EF needs in order to buffer against the possibility of losing the property, and also because ownership tends to increase monthly expenses.

When we were in our 20's and renting we did not think much in terms of EF. We usually had about $5k-$10k in savings, plus additional savings for the next car, tuition, or home-downpayment (as these needs changed).

After closing on our first home we had $8k left in the bank (about a two-month EF at the time) - you can be sure we focused on raising that amount quickly! By the time we bought our second home, we were older and more seasoned. We made sure to leave a six month EF in the bank and plus additional $10k for new furniture expenses.

Because we continue to own two homes we need a larger EF, but we also have two stable jobs, counter-balancing that need. Because the likelihood of both of us losing our jobs at the same time is extremely remote, a six-month EF would suffice, but we like to err on the side of caution, so we keep a 7-8 month EF, depending on how many wants you include in our expenses. I keep a basic spreadsheet that closely tracks our monthly needs, wants, and savings. And yes, we still have other furniture and things, including that large plasma TV!, that we would like to buy that we are holding off on until we save additionally for it.

I personally wouldn't feel comfortable with less than a one year EF if we had only one house-hold income.

[KTP]

I keep 3 years of rock bottom basic expenses in I-bonds, so that is my EF. I can cash them in at any time. They will somewhat increase with inflation. You can buy $20,000 per year as a couple.

[GrimJack]

I was just reading a discussion about putting your EF into a Roth IRA - if you never need it then it is there for retirement and if you do need it, you can take out the original investment - just don't touch the gains.

[LuckyRobin]

I think $30,000 is what I'd feel comfortable with. It's what we are aiming for.

And DR only recommends the $1000 when you are paying down debt. After your debt is paid off he recommends 3 to 6 months of expenses.

[feh]

I was just reading a discussion about putting your EF into a Roth IRA - if you never need it then it is there for retirement and if you do need it, you can take out the original investment - just don't touch the gains.

The problem with this plan is the assumption that there will be gains.

Let's say you have $10K in a Roth, invested in equities. A bear market occurs, and the value decreases 30%. You no longer have $10K to access in an emergency.

For this reason, an EF should not be invested in an asset that can lose value.

[TBH]

Like MM, we have an emergency fund but we also have other sinking funds that could be tapped in a true emergency. For me $30K is a comfortable number. I like to have more than that, but that's the minimum number. If our E fund starts to dip below that I get nervous. It represents about 6 months of expenses. We have two incomes, but we also have a kid, and we own an old house and an old car, and our income varies a lot so I like to have a nice cash buffer.

[Jerry91]

I think that ideally the six month emergency funds may mean 6 months of your take home pay. But as everyone here has noted, individual situations may vary and you will have to design your emergency fund in that way. The rule of thumb is not the last thing for you. Take into account the worst case scenarios as well as your own personal values while building your emergency fund.

[burgm21]

I would recommend that you have at least 6 month, so you don't fall behind on bills, rent, etc. Of course, always make sure you are budgeting just in case, because you never know what will happen.

[LivingAlmostLarge]

Six months but a lot of extra cash on hand for other things. I think a lot depends on where you live, whose depending on income, if you have an HDHP for medical, kids, etc.

[snafu]

If you're just starting to create an Emergency Fund, I suggest you define 'Emergency' so it isn't a 'fill in' if you've overspent. I've a couple of categories which will combine to function for 'Emergency' if I lost employment/income.
We keep $ 500. cash in a home safe should we be evacuated and ATM machines go down. [In June our community suffered once-in-a- 100 year flash flood; 18 districts were evacuated with 20 minutes notice. Electricity was shut down for the entire downtown area for several days; ATMs were nonfunctional or ran out of money].

Our bank offers a long list of free services if we keep a minimum $ 1,000. in chequing which is easily accessible. I've found it practical to give every dollar a 'job.' We have a so called 'High Yield' saving which is a holds sums intended for future planned expenses. When it exceeds $ 10,000. I sweep the excess into a low cost Index Mutual Fund or Dividend ETF since these can be converted to cash in two business days. I know my risk tolerance is higher than those who prefer CDs or cash holdings.