How much is enough for Emergency fund?

[Leshaface]

I know having an emergency back-up fund is very important to have around...

How much is enough for an Emergency fund and how long should that fund last you? 6 months? One year?

Thanks for any input!

 

[traveljunkie2]

I would total up your monthly expenses and multiply by at least 6 to 9, giving you 6 to 9 months of funds to cover your expenses. In this economy, it might even be better to do 12 months.

 

[BrettS]

I would total up your monthly expenses and multiply by at least 6 to 9, giving you 6 to 9 months of funds to cover your expenses. In this economy, it might even be better to do 12 months.

That's a pretty good starting place, but when you do that, note that your expenses might change a bit if you lost your job or whatever... for example, even if you pay for cable TV now you can probably turn that off it you need to, so don't include it in your number. But if you're locked into a contract with your cell phone you will need to include that. If you're not working you might be able to cut down on your gas budget and you probably won't need childcare (if you're paying for it now). Just sit down and think about what you pay for now, and what you could do without if something were to happen and go based on that.

 

[Mom2micayla]

That's a pretty good starting place, but when you do that, note that your expenses might change a bit if you lost your job or whatever... for example, even if you pay for cable TV now you can probably turn that off it you need to, so don't include it in your number. But if you're locked into a contract with your cell phone you will need to include that. If you're not working you might be able to cut down on your gas budget and you probably won't need childcare (if you're paying for it now). Just sit down and think about what you pay for now, and what you could do without if something were to happen and go based on that.

See, I don't know if I agree with that. Sure, you can cancel cable, cell phones, eating out, etc and that will help. But you're going to have to factor in the cost of out of pocket insurance (if you don't pay that already) which will be $$$. So personally I'd go with your current expenses, if not more, and try for 6+ months. It's always better IMO to factor high than too little. You'd be amazed at how fast 6 months worth of savings can go, especially if you've not factored in unexpected expenses or additional ones that you don't currently have.

 

[wdwfan16]

I would do as Mom2 said and add in $1K/month for COBRA. One can cancel cable and the like if the unemployment is going on longer than expected but what if you do it the day you are laid off and then next week get a job. The disconnect and then reconnect can be costly.

You will also be getting unemployment (or maybe 2) so that money will make the EF last you even longer.

 

[Colleen27]

I think the posts above illustrate what I'm about to say - it varies from person to person. We could get by for about a year on our savings, but DH is in a very insecure position (self-employed in construction) and we wouldn't have unemployment to help out if work should dry up so we like to keep a substantial cushion. Someone in a more stable position or an industry where another job would be easier to find might have a different standard for what sort of emergency fund is sufficient.

 

[Kay1]

I think the posts above illustrate what I'm about to say - it varies from person to person. We could get by for about a year on our savings, but DH is in a very insecure position (self-employed in construction) and we wouldn't have unemployment to help out if work should dry up so we like to keep a substantial cushion. Someone in a more stable position or an industry where another job would be easier to find might have a different standard for what sort of emergency fund is sufficient.

I take your point but I still think it's best to keep enough for a full year on hand. My husband has a secure job and a really good consulting job but we're mostly a one-income family, and that worries me a little. So, I'd say a year's worth in CDs and at least $10,000 in a MM.

 

[lisaross]

You also need to take into account if u and your husband are both working. could u live one 1 income if u had to etc etc.

 

[Pastamom]

I would go for a year. It's better to have too much than too little....with this economy - you just don't know what will happen...

 

[dawnball]

I think it depends on what emergency you are preparing for. I know people who have an emergency fund of $50. That's a tank of gas to get to work when you're otherwise tapped out. Or a car battery. Or keeping the electric on. Because their world falls apart without those things and that's the biggest problem they can plan for now. And there are people who keep a few thousand around for a major home repair or their liability-insurance-only car hitting a light post. Or who keep 4-6 months around for job loss.

For me - job loss is not an emergency. We're consultants/contractors - job loss is never more than a day away, but it's also statistically improbable that all of the jobs would end at once, and we usually have a line on a new client who might be interested if we had time available. There's a certain amount of down-time that we just assume into the business, and there are always plans to drum up new clients.

Likewise, at this point in our lives, needing a new air conditioning unit, a new roof, a new car, getting appendicitis, etc - those are inconveniences, not emergencies.

For us an emergency is:

DH's mother (who lives alone and has no other nearby relatives) has her health suddenly takes a turn for the worse. She needs to move into an assisted living facility but there are no current openings. Or she temporarily needs a -lot- of help with the activities of daily living.

One of us, or our child suffers a major injury, is diagnosed with a life-threatening disease, or dies. Auto accident/sports accident/whatever.

Our city has a major natural disaster (earthquake or flooding, lets say)

My sister-in-law (who lives overseas) suffers a major injury or becomes sick and is near-death.

etc

Those are all situations in which a) You're going to spend more money than usual, no matter what. b) You're not going to be devoting much time or mental energy to making more money or intelligently managing the money you have. c) Throwing money at the problem can significantly decrease stress/mitigate damages.

So we look at our yearly cash flow and we find the most vulnerable spot. For us that's in the late summer because we do less work in the summer (vacation and all) and then we pay a big chunk of tuition and then we start pulling in a significant portion of annual income with increased hours and full project queues. So an interruption then has cascade effects. And we say "if one of these really bad things happened -then-...what would we do? What would make that easier? When do you hit diminishing returns on applying more money to the problem?"

That is our savings target. It has nothing to do with income. It has a minimal amount to do with normal expenses, in that they're folded in, but they're sort of a minority representation. It's completely "duck and cover" money, and is intended to provide for 4-6 months of acute need.

That probably isn't everyone's idea of an emergency fund. It probably shouldn't be everyone's idea of an emergency fund. But knowing what you're planning for can make the planning part a lot easier.

 

[ssawka]

It all depends on how secure you are with your job and where you live. We personally have about 6 months worth, but I'm in IT as a government contractor living near Washington, DC. So never say never, but I feel pretty secure that if I had to look for another job that I would find one fairly quickly.

 

[Leshaface]

Thanks for all the replys!

Dawnball, sorry I should have stated for what type of emergency, but geez now you have me thinking about other things! Not that it's funny, but it just seems like, "Alright, gotta add that one to my list.......that one too!"

I'm thinking more for, what happens if I lost my job. DH right now isn't working (student teaching but no job opportunities for the next school year), so that means we'll be living on a subbing position for him, which is never guaranteed that there will be an opening for him to sub.

So I just wanted to get an idea of what would be a good amount to have available in case, DH never got called for a sub position, or rarely got called.

I really do appreciate all the help!

 

[bettymae1121]

It's simply going to vary from family to family. Not just for their own situation (self employeed vs. consulting vs. traditional 9 to 5 vs one income vs. two incomes) but their own comfort level. Some people feel fine with a few buck in the bank, other people can't sleep at night without a years worth of income in CD's.

For DH and I, we can live on either of our incomes (barely, but we could do it) not factoring in unemployment benifits, which we could either bank or use to not cut back on our life style as much. Both our employers offer health insurance so COBRA doesn't factor in. Basicly, one of us could lose our jobs and we wouldn't need to touch our savings, even if we didn't qualify for unemployement for some reason. It would only be the unlikely event of BOTH of us being out of work that we'd be up a creek and looking to savings to provide a paddle. So in our case, we'd need way less than a family that only had one source of income, or a family where the only one who had an employer with insurance was the one who lost their job.

Some savings is better than none, more savings is better than less. The exact number that works for you is only something that you can decide. I would say 3 months of current expenses would be the bare minimum for any one regardless of their exact situation, but beyond that only you can say what's right for you.

 

[dawnball]

Thanks for all the replys!

Dawnball, sorry I should have stated for what type of emergency, but geez now you have me thinking about other things! Not that it's funny, but it just seems like, "Alright, gotta add that one to my list.......that one too!"

Oh yeah, I understand. Every time we think that we're well situated we come up with another thing where we say "well, if that happens - we're *****ed"

 

[Leshaface]

Oh yeah, I understand. Every time we think that we're well situated we come up with another thing where we say "well, if that happens - we're *****ed"

EXACTLY!

Our list seems never ending for us! We've been fortunate enough to be able to pay off some things...two credits cards in full and my student loan! So those are scratched off our list of things to stop worrying about...not onto DH's student loan of $25,000....

 

[ssawka]

EXACTLY!

Our list seems never ending for us! We've been fortunate enough to be able to pay off some things...two credits cards in full and my student loan! So those are scratched off our list of things to stop worrying about...not onto DH's student loan of $25,000....

It's important to be prepared, but don't stop living because of the "what ifs".

 

[quasar4legs]

We keep enough to last us a year based on our current expenditure and then it would depend how thrifty we had been across that year to get a few more months out of the budget.
We are a single income family and have income protection insurance for my hubby so that if he was ill for any length of time we get 75% of his current income for several years.

Good luck with the planning

 

[Leshaface]

We keep enough to last us a year based on our current expenditure and then it would depend how thrifty we had been across that year to get a few more months out of the budget.
We are a single income family and have income protection insurance for my hubby so that if he was ill for any length of time we get 75% of his current income for several years.

Good luck with the planning

Wow have never heard of that! That's really nice!

 

[blanq]

We are a two income family, and both DH and I have been in our jobs over 20 years. I work in supervision in county government and DH as an operating engineer for a coal plant. We both have fairly secure jobs, are subject to seniority rules when it comes to lay-offs and we do not need both our incomes to survive. For our situation, having 6 months worth of expenses works for us.

I feel very strongly about having an emergency savings account. Just this week our furnace died , so we dipped into our account to the tune of $5000+. Having cash available can help you in other ways in situations like ours. The company we used to replace our furnace gave us a 2% discount for cash. We will now work over the next few months to rebuild our account balance to the pre-furnace crash level.

 

[crisi]

Here are some questions to ask yourself:

How fast can I be hired for equalvent wages in my field (I know someone who is a experienced dermatology nurse in Arizona - lots of skin cancer - she doesn't worry. Another who is a tax lawyer - he doesn't worry.)

How much can I cut expenses if I have to?

What expenses are going to arise (Cobra payments) from being unemployed that aren't in my current budget?

What are my other sources of income (husband works, you get several thousand in dividends)?

What are my non-emergency fund assets and how liquid are they? (Big difference between someone sitting on a million in the market - might not be liquid and they might loose some money if the market is down - and someone whose only asset is a ten year old car)

Do I have kids to support? Other obligations? (Kids are a big deal - without kids I could cut my budget to the bone, but I don't want to stress my kids, therefore, we have a bigger fund)

How much stress can YOU handle - and of what kind? You might sleep better at night with a larger amount of money set aside. Or you might not get any enjoyment out of life because all this money is sitting around when it could be used to improve your life now. You know yourself.