Emergency Fund amounts

7.77 months at the moment, although that is lower than it usually is since I am prepping for my daughter's special trip to Hawaii (which is a double-whammy, because it increases my monthly average spending amount, and it decreases the size of my emergency fund).

Thought process: I had read many suggestions, and decided that for my particular circumstances - single guy, three kids, mortgage, child support payment - I needed a certain amount of "sleep at night" factor. I also reviewed my history; since graduating high school I've been not working for at most approximately 4 months. So I set my goal at 6 months, and as noted above am almost always above that amount.

I keep it in a mix of cash and cash equivalents and I keep a portion in a taxable index fund.

2Cor521
 
Over 2 yrs worth of funds in cash, plus over 1 yr worth of short term bonds/MM I can pull out in a hurry... I wanted to keep some cash in case I decide to buy a house and need the down payment fast, but then, I have been thinking like this for years... I have a feeling I end up buying a house in a rural area with this cash when I retire... So I really should invest what I have as cash more wisely... I have been spending the cash to buy more stocks/ETF's, but I need another market dip to get more.
 
I have about 1 year of expenses in a savings account and add a small amount every month. Excess money goes into an IRA, and when I hit the max on that the excess goes into a mutual fund. There's no reason to stop putting money into your emergency fund, once you hit the amount you want you can start throwing it into something a bit more risky.
 
A little over 3mos. For now that seems plenty sufficient with two stable jobs.

As we finish paying back various debt we'll probably both gradually increase our emergency fund to 6mos and then debate on what to do with the rest of the money i.e. (more 401k, more taxable, savings for future car purchas/house upgrade etc) and see what works out as the best balance between future and current spending.
 
I've never been a fan of such one size fits all rules; the comments pretty much show why. I'm on verge of r and never had more than a month or two in true savings account. Now I have about a years worth of needs (above pension income) in cash. I don't consider that an emergency fund, just a bucket that intend to replenish as needed and as markets would indicate is a good idea. Like right now I may sell some stuff to fill it up a bit more.

I always thought the 6 months made sense for those who were more vulnerable to job loss or would likely be in mortgage/payment trouble if they lost their job. But, wouldn't those be the very people who would have the hardest time accumulating such a fund? Then again, I'm a nut who never had a car payment and got rid of the house payment as soon as I could (think was about 45). As for Ms. Orman, I've never listened to her as I sort of find her obnoxious!
 
yaosio said:
I have about 1 year of expenses in a savings account and add a small amount every month. Excess money goes into an IRA, and when I hit the max on that the excess goes into a mutual fund. There's no reason to stop putting money into your emergency fund, once you hit the amount you want you can start throwing it into something a bit more risky.
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Good idea, except once you start throwing money in risky assets, it's really no longer an emergency fund. I think what you're really suggesting is that once your rainy day bucket is full, you like to add more to your retirement bucket... correct?
 
I keep about 5-6 months to pay bills, 1 month for house note cause it is paid by military retirement, I hope secure and 4 months of house note for rental house, which I'm moving to 6 months. Emergency for bills is in CD ladder.
 
Does anyone consider severance pay? If you have been with your company for a number of years, it is likely there will be a severance payment. Some companies use 2 weeks pay for every year; others are more generous (I guess some less generous).

Perhaps 3 months in easy access cash; less if we take our trip to Hawaii this summer;) Perhaps 5 months with some other funds included.
 
Rowdy said:
Does anyone consider severance pay? If you have been with your company for a number of years, it is likely there will be a severance payment. Some companies use 2 weeks pay for every year; others are more generous (I guess some less generous).

Perhaps 3 months in easy access cash; less if we take our trip to Hawaii this summer;) Perhaps 5 months with some other funds included.
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Sometimes severance pay just doesn't apply, for example after a natural disaster when sometimes there is nobody (and no company) any more to pay it.
 
Rowdy said:
Does anyone consider severance pay? If you have been with your company for a number of years, it is likely there will be a severance payment. Some companies use 2 weeks pay for every year; others are more generous (I guess some less generous).

Perhaps 3 months in easy access cash; less if we take our trip to Hawaii this summer;) Perhaps 5 months with some other funds included.
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Funny you should mention that, but yesterday SIL just got laid off. He had worked for the company for 3 months short of 5 years and has received 18 weeks severance pay.
 
Retired now. I keep about 1-2 years in a money market or short term low risk investment. I am starting to move some $$ into preferred stocks which have a bit of risk, however, pay a decent rate of return. I have high lines on credit on my 2 credit cards which I generally use for any major purchase but never carry any balances.
 
I have about 18 months of expenses in a mix of savings account, CDs and I bonds. I also have another 4 months in some junk bonds. Add in unemployment insurance and a very stable job and I am probably overboard, but the CDs are part of my bond allocation.
 
I'm single with no dependents, working and until last year was an apartment dweller.

From 2001-2005 I was paying off $20k of credit card debt but had money in a 401(k) and family to fall back on if things went really bad. I kept around $1k extra as a cushion more than emergency savings.

Once I paid off the debt I had to figure out where/how to save my newly freed income. I eventually arbitrarily decided on a $10k emergency fund target followed by after-tax savings for medium-to-long term but tappable in case of emergency need. Or house down payment.

I dipped below $10k after buying the house. I've had the house almost a year, but I don't think I have any equity. As I build equity I may need to rethink my emergency fund amounts.

Most of my emergency fund is in $1k PenFed CDs, but some is in a MM fund to keep Vanguard happy and some is in checking/savings as a cash flow buffer.

I recall thinking that saving 6-18 months of money would have taken me a long time, have almost zero return and skew my overall AA towards fixed income. But I did prioritize after-tax savings so I wouldn't have to pay income tax and penalties if I had to use more than my $10k cash-similar emergency funds and credit wasn't enough.

I'm a long, long way from starving or not having a roof over my head. My big semi-realistic fears during protracted unemployment are having to drain the IRAs and 401(k) while NAVs are down and taxes+penalties eat up nearly half the withdrawals. And also now losing the house. Although I put effort into regarding the house as a commodity shelter/dwelling, so while I won't flippantly walk away from it I'd have to look long and hard at how much of my retirement savings I would want to burn to avoid losing it.

But more realistically I think I could get a $10/hour job and/or spend on credit and pay minimum payments and tread water a while.

Of course if I had kids I'd probably be a lot more paranoid/protective of their interests.
 
We are retired. We keep outside of the portfolio our current year budget and one more full year. In addition there are funds to cover large expenses we expect to have over the nex few years: wedding gifts for kids, new car, new roof, etc.
 
When people talk about emergency funds they have a different audience in mind than the audience on these forums...

Emergency fund is basically a way of telling people who are spending above their means to at LEAST have 6-8 months of savings.

Most people on these forums already have large savings and live below their means. Your goal should be to increase savings to the point that interest will cover your yearly expenses.

In terms of emergency funds for someone looking at FIRE, I would say keeping a couple of months in higher liquidity instruments would be fine.
 
Bankerwithabrain said:
When people talk about emergency funds they have a different audience in mind than the audience on these forums...

Emergency fund is basically a way of telling people who are spending above their means to at LEAST have 6-8 months of savings.

Most people on these forums already have large savings and live below their means. Your goal should be to increase savings to the point that interest will cover your yearly expenses.

In terms of emergency funds for someone looking at FIRE, I would say keeping a couple of months in higher liquidity instruments would be fine.
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I partially agree but I would also add that emergency funds are for someone like myself as well. My wife and I don't spend above our means but we are only 32 years old but are not fortunate enough to be FIRE yet. I consider an emergency fund critical to use since we are still accumulating funds and would like to have an emergency covered in case something does spring up.
 
Nords said:
It needs to be six-eight months of the expenses that you'd actually bother to pay if you were between jobs.

+ 1 Emergency fund is not 3, 6, 8 months, or whatever of current expenses, but only those monthly expenses that must be paid - food, housing (including utilities), and critically needed clothing.
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kfindley79 said:
I partially agree but I would also add that emergency funds are for someone like myself as well. My wife and I don't spend above our means but we are only 32 years old but are not fortunate enough to be FIRE yet. I consider an emergency fund critical to use since we are still accumulating funds and would like to have an emergency covered in case something does spring up.
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+1
Maintaining an emergency fund is simply good planning, even for those who don't overspend. We are LBYM people but I can't tell you when the furnace is going to blow up or if one of us will find ourselves out of work temporarily.
 
GrayHare said:
I have long found it odd that so many advisors exclude all non-cash investments from the emergency fund. If I were holding decades of expenses in blue-chip stocks but only 3 months in an emergency fund, Suze would be on my case. IMO if I needed cash I'd simply sell some stocks since they are very liquid. If Suze is concerned those stocks might become inaccessible or worthless, well, whatever financial meltdown caused that would likely also make emergency fund cash held at a bank similarly inaccessible or worthless.
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That's pretty close to how I feel too. I figure my stocks and especially my mutual funds are liquid. When I was working I felt reasonably secure about my job, and figured I could sell as needed. It's true that I might be selling into a downturn, but I figure I'd have made up for it by being fully invested the rest of the time. I was also usually coming out ahead on my paycheck so I often had extra cash, and it was more a case of periodically transferring more into my investment account.

Similarly for household emergencies, I have a large credit limit on my cards, so that can tide me over for a month+ to liquidate funds before I owe interest on them.

Now that I'm retired, I have a few months cash set aside for living expenses, which could also be used for emergencies. I actually don't have a specific plan for how much to set aside. I just look at my cash balance once or twice a month when I'm paying a large bill, or know I have a large bill on the horizon like property tax or tuition for DS or a vacation. That's another topic though.

Back when I was married and not in good financial shape, I always felt it was better to try to pay down the cards to avoid/reduce the 18% interest rather than keep a balance to have an emergency fund.
 
kfindley79 said:
I partially agree but I would also add that emergency funds are for someone like myself as well. My wife and I don't spend above our means but we are only 32 years old but are not fortunate enough to be FIRE yet. I consider an emergency fund critical to use since we are still accumulating funds and would like to have an emergency covered in case something does spring up.
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Yes - but don't you have a lot of stocks/bonds/CD's?

You can always liquidate them in case of emergency.
 
ziggy29 said:
Yeah, but really, who wanted to be in a position where they *had* to sell equities in February 2009?
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I'm not cashing out part of my Roth to pay for a new roof. In that scenario, I would much rather have an emergency fund.
 
I have broken mine down into 2 seperate categories. I have 6 months for each rental house I have to cover incase of no tenants. For the other normal monthly bills, I currently have just over 2 months, I am working on increasing this, but my situation is pretty stable (military that is retiring next year with a pension), so my expected income between my and DW retirement checks covers our proposed expenses. Still I am looking at having 4 months.
 
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