Comments on: Is Your Emergency Fund Big Enough?

By: skrpune

skrpune — Thu, 01 Jan 1970 00:00:00 +0000

I’ve done the EF calculations multiple ways, but I think the most realistic way is to do it with 3-6 months of reduced expenses. For my calculations, I lowered and even eliminated multiple costs – dining out, (car) gas, doggie day care, cable, etc.

I also do the calculations with and without UI – it may not be much and it may be temporary, but with UI factored in, that EF can get stretched a lot longer. I still like to have at least a full 3-6 months of reduced monthly expenses, but assuming my husband and I don’t both lose our jobs at the same time, that becomes 9-12+ months covered.

By: skrpune

skrpune — Thu, 01 Jan 1970 00:00:00 +0000

I’ve done the emergency fund calculations

By: Kevin@RothIRA

Kevin@RothIRA — Thu, 01 Jan 1970 00:00:00 +0000

I’m wondering if the 3-6 rule that’s been around for decades is even valid any more. Periods of unemployment are often running six months or more, or even a year or more. It may be time to start thinking in terms of 6-12 months, especially in a single income household.

That might make blending of emergency fund sources necessary–not many people can afford to hold 12 months of living expenses in an emergency fund paying less than 1%. So maybe some of the emergency funds are held in a Roth IRA, some are held in conservative mutual funds, etc.

That’s really creating dual use savings, for emergencies or for long term investment (if the emergencies don’t pan out). You certainly don’t want to go with 5 year Treasury notes or 36 month CDs because you might need the money before then.

By: Jerry A.

Jerry A. — Thu, 01 Jan 1970 00:00:00 +0000

One more thing which came up in another finance blog (The Simple Dollar). You should not be paying for known irregular expenses out of your emergency fund. For example, an annual insurance payment is not an emergency. Be it auto, home, or renter’s policies, many people have at least one. You know it’s coming, when, and about how much, year after year. This should be a planned expense for which you set aside money in savings every month so that when the bill comes, you simply pay it. If this type of bill is a recurring emergency for you, then you probably can’t afford your lifestyle during the rest of the year. On the other hand, if you’re really well organized (and make enough), then you can set aside the same kind of monthly savings for e.g. a new or replacement car or refrigerator or whatever.

By: Shaun Somers

Shaun Somers — Thu, 01 Jan 1970 00:00:00 +0000

“If you have to ask, yours isn’t big enough”

Great line, and very true. Chances are someone asking hasn’t got an emergency fund at all!

By: Pam

Pam — Thu, 01 Jan 1970 00:00:00 +0000

Insightful article. You are so right that there are a number of factors to take into account before determining what amount is necessary for your emergency fund. For some three months is plenty but for folks depending on a single income, probably a lot more would be required. Thanks for taking the time to write a thorough article on this subject.

By: B Kelly @ MoneyMasteryAcademy

B Kelly @ MoneyMasteryAcademy — Thu, 01 Jan 1970 00:00:00 +0000

When i looked at my finances, I realised that the reason my emergency fund was small and fluctuating was largely due to the fact that I had over leveraged myself… so now i have to simplify and re-distribute my investments so that I can finally build a proper liquid emergency fund..

By: Vas

Vas — Thu, 01 Jan 1970 00:00:00 +0000

A percentage of your income should be put into your emergency fund lets say 10% or whatever is reasonable. In my view it should be more than what you expect you will need if an emergency arises. In the end whatever is not used will be your savings.

By: John DeFlumeri Jr

John DeFlumeri Jr — Thu, 01 Jan 1970 00:00:00 +0000

Make sure the emergencies are small enough, that’s a good idea too!

By: PT

PT — Thu, 01 Jan 1970 00:00:00 +0000

Good point, Jen. 3-6 may not be enough for those in high unemployment areas, or for those in certain industries right now. Do you think you’d be open to a move or career change if things don’t improve?