Emergency Fund Question

[cashisking500]

Why do I feel like we never have enough in our emergency fund? Our current lifestyle has us spending approx. $4,000 per month. This includes housing, food, utilities and luxuries.

We currently have $16,000 in our emergency fund which would cover us for 4 months - likely longer if there was a true emergency like job loss, extended sickness, etc. and we cut out luxury items/services.

At one point, we saved up to $23,000 in the EF and have recently used some of of it to cash flow home improvements.

16k should be plenty, but I already have myself thinking about 20k and I'm afraid if we get to 20k I'll start thinking about how we should have 25k, etc.

Maybe I'm going crazy and just being ultra conservative?

[Jluke]

I know where you're coming from on not feeling like you have enough in your EF.; esp when you spend it down to lower levels.

To solve this, perhaps you shouldn't combine your EF with funds for home improvement, etc.

Save that money separately, or just earmark it in whatever system you are using to track finances. (i.e. 20k represents 4k of spending and 16k of EF).

[greenskeeper]

My EF only includes mandatory expenses per month, not all monthly expenses.

I'd bet your $16k would stretch to at least 6 months if not more.

[snafu]

I too believe $ 16K EF will adequately cover basic costs for 6 mo and is adequate. Don't use it for home improvement, vacation, upgrade vehicle etc which are not genuine, unanticipated emergencies. One of our cities has been declared a 'state of emergency,' mandatory evacuation. People didn't get a chance to go home, they were required to leave from work or where ever. Hospitals evacuated etc.

This is an emergency! Go to a shelter in the next community/village [population 2,500] If your house is razed you've an unanticipated emergency. Hope you keep a backpack with emergency supplies in your trunk

[sv2007]

If you don't feel its enough, maybe because it isn't enough.

The reason can even be psychological, but it's still a reason to increase it because you don't want to have that worry all the time.

Or do you want to say that you think it is enough but want to know if still more should be put away? In this case, a rule of thumb that I've heard is 6mo of your normal spending.

BTW, the rainy day fund should be in cash, e.g. money market or savings account.

[feh]

Why do I feel like we never have enough in our emergency fund? Our current lifestyle has us spending approx. $4,000 per month. This includes housing, food, utilities and luxuries.

We currently have $16,000 in our emergency fund which would cover us for 4 months - likely longer if there was a true emergency like job loss, extended sickness, etc. and we cut out luxury items/services.

At one point, we saved up to $23,000 in the EF and have recently used some of of it to cash flow home improvements.

16k should be plenty, but I already have myself thinking about 20k and I'm afraid if we get to 20k I'll start thinking about how we should have 25k, etc.

Maybe I'm going crazy and just being ultra conservative?

Depends on how you view your EF. If it's merely for paying living expenses, you have enough. If you also want to make occasional large expenses, then it could be larger.

Wasn't it wonderful to pay for home improvements without taking out a HELOC? Wouldn't it be wonderful to buy a car with cash?

[Fishindude77]

Something like a HVAC system replacement or major automobile repair could easily what you for $4-6,000 all at once. Simple solution ...... Build up your emergency fund to a point that makes you comfortable.

[feh]

Something like a HVAC system replacement or major automobile repair could easily what you for $4-6,000 all at once. Simple solution ...... Build up your emergency fund to a point that makes you comfortable.

5 years ago one of our cars was totaled, so we needed to replace it. Bought a new one for cash from our EF.

Last year we needed to replace our HVAC. Paid for it out of our EF.

Last year we remodeled our master bathroom. Paid for it out of our EF.

So, we clearly consider our EF as more than just something to cover routine living expenses. Works for us.

[corn18]

My emergency fund is for emergencies (mostly job loss insurance). Nothing else. It has 7 months of expenses in it. I also have separate funds for vacation, new car, planned home improvements, planned medical procedures, etc... I also keep my checking account balance at 1-2 months of expenses and can cash flow any small "emergencies". All of this results in a cash available fund (EF + all other funds) of 17 months of current expenses (no cuts at all). I feel comfortable with that because if I lost my job, then I may decide not to take a vacation that year or hold off on buying a new car. Then I could live for 17 months without any income. This approach helps me sleep very well at night.

Tom

[sjc0816]

I feel like we never have enough...but our e-fund and "home improvement" fund are one in the same. In the last few years we have had one murphy after another.....basement flood/remodel, some windows and siding replaced, our house painted, very unexpected and expensive surgery for our son, FIL passed and we had to help with funeral expenses....and on....and on. We are a single income family of 4 and have been able to cash-flow all of these things and keep our emergency savings around $10,000. Would I rather have 25k in there? Yes. But, life happens and we are doing the best we can. We also have a shorter term mortgage than most and prioritize retirement savings.....so we feel a little cash poor since we have had so many large expenses lately. We're hanging in there though. No debt except the mortgage and very healthy retirement savings.

[parafly]

Once you've reached your emergency fund goal, it's perfectly fine to continue building up your liquid savings.

You mentioned that you spent some of your savings on home improvements recently. Think of this money as coming out of your home improvements fund, not your emergency fund.

Is there anything in the near future that you see as a big ticket item such as a car purchase, more home improvements, etc.?

When your emergency fund is full, you can allocate more liquid savings toward other goals, and your emergency fund remains completely in tact and fully funded after your purchases are made.

[PhilDanley]

Go With the Spouse Who Wants More in EF

Hello. I'm assuming your married from your post. In our case, I wanted four months of expenses and my wife wanted six months. So we went with six. There is no harm in choosing the more conservative number.

[sv2007]

Hello. I'm assuming your married from your post. In our case, I wanted four months of expenses and my wife wanted six months. So we went with six. There is no harm in choosing the more conservative number.

There is possible a downside IF you happen to not need that emergency cash. Due to the nature of being emergency money, it'll likely be very conservatively invested (like money market or savings account), i.e. avoid risk. This also means a lower return.

[cashisking500]

Hello. I'm assuming your married from your post. In our case, I wanted four months of expenses and my wife wanted six months. So we went with six. There is no harm in choosing the more conservative number.

Yes Phil, I am married. And I agree on having the most conservative number that both agree on. Thanks.

[disneysteve]

There is possible a downside IF you happen to not need that emergency cash. Due to the nature of being emergency money, it'll likely be very conservatively invested (like money market or savings account), i.e. avoid risk. This also means a lower return.

The purpose of an EF is not to make a bunch of money but to be prepared with readily accessible funds in the event of an emergency.