Emergency fund - what is your guideline?

[Nika]

I like to calculate mine on number of months of take-home pay, not based on bare minimum expenses.

Because it would be nice to avoid additional stress of forced cuts in a crisis situation (and any situation that calls for the use of EF is a stressful situation).
And while some expenses may go down in a scenario like a job loss (childcare), other will rise (such as health insurance).

Also, I cannot stand having money in a savings account doing nothing. So we do invest pretty much our entire emergency fund. So than it is really 6-9 months of take home pay (9 month as it is now, but 6 if the market was to crash 30%). Since our jobs are fairly stable, I think it is a reasonable strategy.

Plus, both of us have at least a month of vacation time banked at all times - a reserve for emergencies that may require time.


What are your personal EF guidelines?

[bjl584]

As you become more financially savvy and more established, the need for an EF starts to decrease. It sounds like you are doing just fine. There is probably no need for you to have a pile of cash sitting around. As long as you can access your investments if needed, then I don't see an issue.

[bigdaddybus]

I keep a minimum of 3 months of expenses in cash ($21,000), right now it's approx 29K.

My next "level" of emergency fund is a scottrade non retirement account where I can sell the current stocks/funds and have cash in 3-4 days. This account has a checkbook and debit card as well, so any cash balance can be accessed immediately.

The next "level" would be selling the cars and buying cheaper ones and living off of the difference.

The next "level" would be selling the house and moving in a rental and living off the profit from selling the home.

The next "level" would be withdrawing my wife and I's ROTH contributions.

The final "level" of emergency money would be a loan against my 401K or hers.

After that, I think we would have to move into a shelter until we could begin drawing our pensions and then move to a hut on a beach somewhere.

[cardtrick]

3K in cash is what I have in the bank. That's 2 months of expenses. The rest in taxable investments. I was looking into opening a HELOC for emergency use. I don't like cash sitting in the bank. Worst case, I can borrow on my credit cards. In case of a job loss, my liquid assets should last me at least 5 years living frugally and selling the house would give me another 6 years of expenses.

I'm financially savvy so I feel that the "6 month" rule doesn't apply to me. When I get to a point where 6 months of expenses is insignificant compared to my total liquid net worth, I will put aside a bit in the bank.

[jpham540]

I think I am keeping too much in my EF fund I have about $40,000 for EF fund. My expense is low because I am working oversea so I don't have much expense. I only have a personal mortgage and a rental mortgage that pays for itself. I am considering downsizing my EF fund maybe to $20,000 and adding more to investment.

[Eagle]

What are your personal EF guidelines?

I'm not sure it's a good idea to have your entire emergency fund invested. How esily can you access the funds in case of an emergency? We try to keep 6 months or more of expenses in the bank. We used to keep 12 months.

I try maintain at least 3 to 4 weeks of vacation time banked in case of an emergency as well. A lot of people overlook that.

[Eagle]

3K in cash is what I have in the bank. That's 2 months of expenses. The rest in taxable investments. I was looking into opening a HELOC for emergency use. I don't like cash sitting in the bank. Worst case, I can borrow on my credit cards. In case of a job loss, my liquid assets should last me at least 5 years living frugally and selling the house would give me another 6 years of expenses.

I'm financially savvy so I feel that the "6 month" rule doesn't apply to me. When I get to a point where 6 months of expenses is insignificant compared to my total liquid net worth, I will put aside a bit in the bank.

2 months seems like a low amount. Is your job pretty stable? Do you live with family?

It's a really bad idea to borrow on credit cards at 15-30% interest.

[Eagle]

I think I am keeping too much in my EF fund I have about $40,000 for EF fund. My expense is low because I am working oversea so I don't have much expense. I only have a personal mortgage and a rental mortgage that pays for itself. I am considering downsizing my EF fund maybe to $20,000 and adding more to investment.

Do you have a Roth IRA? Here's a good starting point.

I'd also look into opening a mutual fund with half of that money as you say.

[BuckyBadger]

We keep about $20k in a liquid savings account. This acts as both emergency fund and "slush" fund. That means that we use it for our overages above our normal monthly budget. Vacations, deciding to buy a couch or a TV. Things like that. It ebbs and flows and if we have two months with a lot of extra spending it might dip down to $15k or so, but we are constantly refunding it at a rate of $2000 every other week, so it in general trends up. We are disciplined enough not to just spend it all, so that's not a concern. At the end of the year everything over a certain amount is scraped off and added to our taxable account.

This is fine for us because we have a lot of safety nets. Both of us work and make pretty close to the same amount. Our jobs are as stable as jobs can be. We have taxable investments, we could tap if we needed more than what we had. We spend a lot of money on wants every month that we could cut WAY back if we needed to. We have family that can help.

If we had to cut down to a bare bones budget, that $20k could last us I'd say 4 months.

So you could say I have a 4 month EF, but it's not as "off limits" as some are to other people. It's all fungible.

[feh]

I'm not sure it's a good idea to have your entire emergency fund invested.

+1

EF should not be in a volatile investment, such as stocks. I suggest online savings account; if you simply can't bear the .9% interest, short term bond funds are probably ok.

But since layoffs and stock market crashes often coincide, I don't feel an EF should be in equities. You don't want to have to sell when the market is down.