JamesKim
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| Emergency Fund |
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this is a dumb question but I am just curious of how much Emergency fund should one save. It'll vary from individuals, but just in a ball park, how much emergency fund should a person have?
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Sat Mar 15, 2008 2:01 am |
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c.ronaldo
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| emergency funds |
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well it depends dude,
i guess if u have insurance covering you and your belongings, you wouldnt need much capital outlay if any emergency arises.
I feel the minimum current assets one should have is around 10k if u have others to support.
If it only you then lesser perhaps.
cheers 
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Sat Mar 15, 2008 3:27 am |
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coaster
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The general rule of thumb is six-months' living expenses. But as the other dude says, it depends. What are you comfortable with? How much support could you expect from others if your income stops? Who's depending on you for their support? If you're living with your parents rent-free, then you don't need an emergency fund. They're your "emergency fund."
Insurance* won't cover loss of income. It won't make house payments, car payments, buy the groceries, or pay the heating bill.
* unless it's disability insurance, which for most types of coverage, involves a six-month waiting period anyway, before the benefits kick in.
~Tim~
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Sat Mar 15, 2008 4:26 am |
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pf101
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Yep, I agree with the others. 3-6 months is the rule of thumb but it totally depends on your personal situation. If you have a steady job and few major financial obligations it's ok to have a lower emergency fund.
For example, when I was an employee of a consulting company my emergency fund was $0. My job was very secure, I didn't own a home (so there would be no major expenses coming from that) I didn't own a car (ditto on major expenses) and I had no one counting on my income besides me. I also had a $20k line of credit that I could tap if there truly was an emergency and investments I could sell if I needed to pay that off. It didn't make sense to me to have a chunk of money sitting around doing nothing. I'm also relatively high risk with my personal money.
When I decided to become self employed that changed. I gathered a large cash cushion (about a year of expenses) to supplement the lean times that can come with self employment. But even that I kept in a more aggressive investment than a savings account. I hate savings accts! 
Personal Finance 101
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Sat Mar 15, 2008 3:35 pm |
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oldguy
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It also varies with the definition of EF. We haven't had a savings account for about 35 years - we have a taxable stock account that doubles as an EF. The money is available in 5 days and we have cc's to cover the first 5 days. The downside would be that we could have an emergency at a Market low and we woulf be forced to sell stocks at a low price, thereby making the emergency worse. In practice, the 12% return of the Market over 35 years has far outweighed that, and the fund has grown to a substantial size.
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Sat Mar 15, 2008 4:05 pm |
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coaster
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As has been mentioned, you don't want your cash laying around not working for you. However, I do like to have at least $5K ready for instant use -- that would be in a money-market fund with check-writing or electronic transfer priveleges. And I've had to make use of the instant funds, too. Plus, I've got some hard assets in a safe in the basement if the whole financial system goes to hell.
~Tim~
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Sat Mar 15, 2008 4:47 pm |
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pf101
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quote:
Originally posted by coaster
Plus, I've got some hard assets in a safe in the basement if the whole financial system goes to hell.
What was your address again...? 
Personal Finance 101
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Sat Mar 15, 2008 11:54 pm |
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coaster
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It's pretty heavy...... 
~Tim~
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Sun Mar 16, 2008 2:33 am |
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pf101
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quote:
Originally posted by coaster
It's pretty heavy......
I have friends.
Personal Finance 101
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Sun Mar 16, 2008 4:10 am |
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coaster
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....with heavy-duty chain hoists and a one-ton flat-bed.
OK, maybe I'm exaggerating slightly
or even a little more than slightly
~Tim~
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Sun Mar 16, 2008 4:34 am |
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StephanieWalters
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| Emergency Fund Amount |
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What I usually instruct people is that they need 3-9 months worth. This is dependent on the type of job that you have and how long it takes to typically land a new one if you are fired or laid off. Also, this amount should include all your typical monthly expenses. All the way down to groceries and gas for your car. I prefer a closer to 9 months. Good Luck!
S.Walters
Author, The Beginner's Guide to Stress-Free Financial Living
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Sun Apr 06, 2008 12:07 am |
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efflandt
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And don't forget about having a Roth IRA as PART of your emergency fund if you do not already fully fund one, since you can withdraw already taxed "contributions" from that at any time without additional tax or penalty (although, gains could be taxed/penalized if drawn too soon). Why not have some of that stagnant money earning tax free gains? Just avoid dipping into that if at all possible.
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Sun Apr 06, 2008 4:11 pm |
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coaster
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I guess the definition of "emergency funds" means different things to different people. To me, emergency funds includes money I need for unexpected non-recurring items that might not exactly be emergencies: unexpected expensive auto or home repair, unexpected need to travel; or maybe even a large discretionary purchase like paying cash for a new car.
One personal example: I wanted to have my roof reshingled last year. I paid cash for the job and the cash came out of my cash reserves. I'll use money out of my ready cash reserves ... my emergency fund ... for things like that because I can replace the funds. But I would never use money for those things out of my retirement funds. Gains spent are gains lost forever. Thus I wouldn't ever consider using any retirement funds as part of my emergency fund. Unless I'm truly in extremis and that money is the only thing that stands between me and disaster.
~Tim~
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Sun Apr 06, 2008 6:08 pm |
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pf101
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Here's the thing about using a Roth as an emergency fund...
For many people it is either fund a Roth or fund an emergency fund. They can't do both. If this is the case, it makes much more sense to fund the Roth first because *if* there is an emergency, you can get at the money. But if there isn't one, it can stay in there and continue growing. You'll also have the earnings left if you do have to take the contributions out, and you've not forever lost your chance to contribute. Also, it's important to note that when you take money out of your Roth, you have 60 days to replace it before it's counted as gone for good.
So, while it's not ideal to have your retirement fund acting as your emergency fund, it's better than having no retirement fund at all.
I feel the same way about having a large emergency fund while carrying high-rate debt. I find it silly to have cash sitting earning next to nothing while paying double digits in interest. IMO, it's better to pay down the debt and save that money on interest and *if* you have an emergency, you can use the available balance on the credit cards to cover it.
Personal Finance 101
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Sun Apr 06, 2008 10:50 pm |
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coaster
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My only debt is my mortgage, so that's where my opinion on emergency funds comes from.
~Tim~
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Mon Apr 07, 2008 1:40 am |
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