Opinions on "N months of money in the bank"

[Nutria]

That's easy for a sole bread-winner, but what about when both people work?

Do you take into account that it's unlikely that both will lose their jobs at the same time (and thus still have some income stream), or head straight to the worst case scenario?

And do you calculate the amount of money needed based on current spending, or on a pared-back budget? How pared back?

Do you consider all of your savings as part of that "N months of money in the bank", or do you have a special account just for that?

Thanks

[disneysteve]

Rule of thumb is 6 months of expenses. You can figure as much into that number as you are comfortable with. If there are expenses that you could easily drop if needed, don't count them. For example, if you normally spend $300/month eating out but are willing to stop that if you lose your job, don't count that. However, make sure to count things you can't easily stop like contracted services.

[Fishindude77]

This goes against smart money management principles, but I really never had a dedicated emergency fund when I was young and probably should have.

Have always been self employed so I wasn't going to lose my job however income stream could vary significantly depending on business results. Never was concerned about losing job or getting laid off like I might if working for the other guy.

Have always lived well below income level, and had good credit so could tap line of credit in a pinch for a new furnace, well, roof or something like that if necessary.

An emergency fund is a good idea for most and savings equal to about six months of the highest earners income (after tax) would be adequate. This needs to be money that is easily accessible such as a CD or cash in the bank. Tapping the 401K should not be an option.

[disneysteve]

An emergency fund is a good idea for most and savings equal to about six months of the highest earners income

I don't think EF should be based on income but rather on expenses. We earn a lot more than we spend. If I lost my job, we wouldn't need to replace my income, just the portion of it that we need to pay our bills.

[Fishindude77]

Good point, unfortunately most don't have earnings well in excess of outgoing expenses.

[Nutria]

Good point, unfortunately most don't have earnings well in excess of outgoing expenses.

Who are you responding to?

[Nutria]

I don't think EF should be based on income but rather on expenses. We earn a lot more than we spend. If I lost my job, we wouldn't need to replace my income, just the portion of it that we need to pay our bills.

But do you take into consideration that your Significant Other still has a job (if your SO does in fact have a job) when determining how much of a job loss EF that you need?

[disneysteve]

But do you take into consideration that your Significant Other still has a job (if your SO does in fact have a job) when determining how much of a job loss EF that you need?

I would look at household expenses and have savings equal to 6 months of household expenses. I don't think it makes any difference who is bringing in the income or how much each one is bringing in.

[Nutria]

I would look at household expenses and have savings equal to 6 months of household expenses. I don't think it makes any difference who is bringing in the income or how much each one is bringing in.

So it would just last longer if one were still working. That's reasonable...

[disneysteve]

So it would just last longer if one were still working. That's reasonable...

Also, keep in mind that an emergency fund is not just a "job loss" fund. It's to have money on hand to cover other emergencies too. Say you wreck your car. Insurance only gives what the car is worth, not enough to go get a replacement. Plus you have a deductible. Or one of you gets sick and incurs some medical bills. Or your heater dies on a cold winter day. You need $4,000 for the new heater plus your family needs to spend 3 days in a hotel (happened to us in January).

There are lots of reasons to have a fully funded emergency fund. In my lifetime, I've only needed it for job loss once but I've needed it for various other things many, many times.

[Nutria]

Also, keep in mind that an emergency fund is not just a "job loss" fund. It's to have money on hand to cover other emergencies too. Say you wreck your car. Insurance only gives what the car is worth, not enough to go get a replacement. Plus you have a deductible. Or one of you gets sick and incurs some medical bills. Or your heater dies on a cold winter day. You need $4,000 for the new heater plus your family needs to spend 3 days in a hotel (happened to us in January).

There are lots of reasons to have a fully funded emergency fund. In my lifetime, I've only needed it for job loss once but I've needed it for various other things many, many times.

I've got Job Loss & Medical, and am slowly building EF. Life happens, though, and Medical and EF keep getting chipped away at.

(Rigorous budgeting, and a wife that's on-board with never going over budget has allowed us to live well and save a decent amount instead of adding more debt each month even with a relatively high income.)

[Eagle]

I would look at household expenses and have savings equal to 6 months of household expenses. I don't think it makes any difference who is bringing in the income or how much each one is bringing in.

I agree with Steve here.