How many months of expenses in emergency fund?
How many months of expenses in emergency fund?
For those who have dedicated emergency funds with cash sitting outside the investing portfolio, how much in dedicated reserves do you have? I currently have about 2'years worth. Makes me sleep better at night. For those with especially,large funds, would like to hear your circumstances.
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Re: How many months of expenses in emergency fund?
6 months for first tier (in the bank earning piddling interest, which I think is what you wanted)
18 more months in ROTH IRA contributions, which I consider as second-tier.
Does not count cash in short-term fund for expected but non-essential purchases, which could be delayed.
(Christmas presents, small trips, etc.)
18 more months in ROTH IRA contributions, which I consider as second-tier.
Does not count cash in short-term fund for expected but non-essential purchases, which could be delayed.
(Christmas presents, small trips, etc.)
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Re: How many months of expenses in emergency fund?
Have most of it in one year CDs which I can break in an emergency. Would last 12 months of current spending or 18 months or longer if we cut back assuming my husband does not lose his job at the same time. To replace my income would likely require me to relocate and I have high school age kids I do not want to uproot. I am also unwilling to travel away from them for half the week as a consultant. So I need enough money to supplement a lower paying local job or to go until they graduate without work. I have taxable accounts and Roths so I have funds I could dip into beyond that if needed. Right now, it feels like a big stash but I will be glad it is there if I need it.
Re: How many months of expenses in emergency fund?
I have 9 months, but a plan to go deeper if necessary. I can sell I-bonds to get me another 9 months, then taxable funds.
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Re: How many months of expenses in emergency fund?
We keep half a car's purchase price liquid, which translates to 7~8 month of expenses. A car is de facto required to work where I live.
Re: How many months of expenses in emergency fund?
About 2 years liquid. We also have another 3-4 years in ibonds which could be thought of as a secondary emergency fund i suppose.
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Re: How many months of expenses in emergency fund?
2 months in high-yield savings at smartypig.com, another 5 months in a limited-term municipal with my Vanguard taxable account. I have a separate pot of money in the limited-term municipal for non-emergency large purchases (new computer, home updates, etc) and vacations. Neither of these are considered part of my overall asset allocation.
My target EF is 6-9 months, or about $30-45k total.
My target EF is 6-9 months, or about $30-45k total.
Re: How many months of expenses in emergency fund?
1 month
Anything larger than that would keep me up at night worrying about how much money I am losing to inflation.
Anything larger than that would keep me up at night worrying about how much money I am losing to inflation.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Re: How many months of expenses in emergency fund?
Personally, I use a 'tiered' method for keeping my EF.
Tier 1: Checking acct, $1k float + overdraft-linked Savings acct with $500 (about 1/2 month's expenses)
Tier 2: Online savings account, 1 months' expenses
Tier 3: TD I-Bonds, 4-5 months' expenses
----End of my "dedicated" EF----
Tier 4: Online savings accounts for other savings goals (home maintenance/irregular expenses, general savings, etc.), amount varies.
Tier 5: Taxable investments
Tier 6: Roth IRA (yes, yes, this is "backwards" tax-wise... but I prefer to keep my retirement accounts sacrosanct & I'm willing to take a minor tax hit to that end if necessary)
Tier 1: Checking acct, $1k float + overdraft-linked Savings acct with $500 (about 1/2 month's expenses)
Tier 2: Online savings account, 1 months' expenses
Tier 3: TD I-Bonds, 4-5 months' expenses
----End of my "dedicated" EF----
Tier 4: Online savings accounts for other savings goals (home maintenance/irregular expenses, general savings, etc.), amount varies.
Tier 5: Taxable investments
Tier 6: Roth IRA (yes, yes, this is "backwards" tax-wise... but I prefer to keep my retirement accounts sacrosanct & I'm willing to take a minor tax hit to that end if necessary)
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Re: How many months of expenses in emergency fund?
I have 12 months, which falls in two of your categories. I picked the 12-18 category for two reasons
*If I really got in an income interruption pickle I would reign in certain discretionary expenses so could milk the funds a little longer
*I have a debt-free policy so usually have a sinking-fund or two going for near-term purchases that I'm able to draw on if need be.
Two other notes:
*I don't keep it all in cash, part is in S-T bonds
* While it's sized to cover > a year of income interruption, I use it for unexpected things that pop up. An example was this past September in an 18-day period I had my home computer die, an unexpected $2000 auto repair bill, and a plumbing problem in my house that required substantial repair in two bathrooms. So I used the emergency fund to cover a portion of those things that had to be paid right away (auto repair and homeowners deductible). Of course, at that point replacing the funds became a priority and I diverted income away from taxable investment contributions for a couple paychecks to restore the fund. That sort of fund tapping doesn't happen every year, but usually at least every 2-3. So in a sense my emergency fund also covers the role that a lot of people would deploy a credit card or some other form of debt assumption for.
*If I really got in an income interruption pickle I would reign in certain discretionary expenses so could milk the funds a little longer
*I have a debt-free policy so usually have a sinking-fund or two going for near-term purchases that I'm able to draw on if need be.
Two other notes:
*I don't keep it all in cash, part is in S-T bonds
* While it's sized to cover > a year of income interruption, I use it for unexpected things that pop up. An example was this past September in an 18-day period I had my home computer die, an unexpected $2000 auto repair bill, and a plumbing problem in my house that required substantial repair in two bathrooms. So I used the emergency fund to cover a portion of those things that had to be paid right away (auto repair and homeowners deductible). Of course, at that point replacing the funds became a priority and I diverted income away from taxable investment contributions for a couple paychecks to restore the fund. That sort of fund tapping doesn't happen every year, but usually at least every 2-3. So in a sense my emergency fund also covers the role that a lot of people would deploy a credit card or some other form of debt assumption for.
Don't do something. Just stand there!
Re: How many months of expenses in emergency fund?
It's too early in the morning for me to do the math, but I currently have about 18 months in mine. I used to have about a year's worth of expenses in my emergency fund, but lost my job and was unemployed for, well, about a year. I had about one or two more month's of expenses left in my emergency fund when I got a new job, so I was mentally gearing up to sell some stock before that happened. I was deeply relieved that I didn't have to sell stock in a down market, and with the economy still being choppy (and my job not feeling as secure as I'd like), I figured I'd bump up my emergency fund in case that happens again.
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Re: How many months of expenses in emergency fund?
Only 2 months, but stable jobs and several other tiers of available money.
Re: How many months of expenses in emergency fund?
Currently, 6 months in the bank and an additional 6 months in I bonds as a second tier.
Re: How many months of expenses in emergency fund?
Well it depends on just what you mean.
We have liquid money to cover emergencies. But also a new car when needed. Vacations. Etc. To some degree it is bit of a sinking fund but over time is pretty stable. In several years as we near retirement and our kids go to college I expect it to be tapped as one of our sources of college funds. By then if we have a prolonged job loss it will simply be early retirement and we'll have pensions and retirement savings to call on at which point "emergency fund" starts to be meaningless.
To some degree as much as emergency fund it is simply part of our asset allocation of Stocks, Bonds and Cash, ie one of the three basic building blocks of a standard portfolio.
How long it would last depends on how hard we tighten our belt, but I answered 18-24 month. Sounds like a lot, but give its multiple intended uses I don't think it is excessive.
We have liquid money to cover emergencies. But also a new car when needed. Vacations. Etc. To some degree it is bit of a sinking fund but over time is pretty stable. In several years as we near retirement and our kids go to college I expect it to be tapped as one of our sources of college funds. By then if we have a prolonged job loss it will simply be early retirement and we'll have pensions and retirement savings to call on at which point "emergency fund" starts to be meaningless.
To some degree as much as emergency fund it is simply part of our asset allocation of Stocks, Bonds and Cash, ie one of the three basic building blocks of a standard portfolio.
How long it would last depends on how hard we tighten our belt, but I answered 18-24 month. Sounds like a lot, but give its multiple intended uses I don't think it is excessive.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Re: How many months of expenses in emergency fund?
+1. I answered 12-18 months. I don't really think of it as dedicated EF, it is cash on hand. I may use some of it to balance my investments in the event of a market event or I may use it for a trip to Hawaii or a car repair. If it gets to less than 6 months of expenses I stop spending until it gets back to 12.Rodc wrote:Well it depends on just what you mean.
We have liquid money to cover emergencies. But also a new car when needed. Vacations. Etc. To some degree it is bit of a sinking fund but over time is pretty stable.<snip>
How long it would last depends on how hard we tighten our belt, but I answered 18-24 month. Sounds like a lot, but give its multiple intended uses I don't think it is excessive.
I know this is not totally optimal in terms of market return but it works for me.
"Confusion has its cost" - Crosby, Stills and Nash
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Re: How many months of expenses in emergency fund?
12 months of expenses in an online savings account yielding .85%. The balance of taxable assets can be liquidated to accommodate an additional 24 months of expenses in the event of an extended period of unemployment. I selected the Permanent Portfolio allocation for my taxable account as 25% of assets are held in cash. Kills two birds with one stone; An emergency fund built into the overall allocation so I don't feel as though I am losing out to inflation.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: How many months of expenses in emergency fund?
Three plus years in different accounts as part of my boring SWAN (sleep well at night) portfolio--which by the way is doing fine. Thanks for reading //fig//
~ Member of the Active Retired Force since 2014 ~
Re: How many months of expenses in emergency fund?
As we are retired, I took the liberty to skew the vote. Had I been able to vote "thirty years", I would have done so.
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Re: How many months of expenses in emergency fund?
I have two different types of emergency funds. One is for living expenses in case of job loss. I keep 12 months of expenses in that, half in cash, half in I bonds. The other EF is just a set amount that is earmarked ONLY for the following: legal fees, unexpected medical/dental, emergency lending to relatives, & anything else that is truly unforeseen. I keep the 2nd EF purely in I bonds, so I don't have to worry about inflation. I keep the equivalent of roughly 3 months of living expenses in this 2nd EF.
I don't like dipping into my 12 months of living expenses for emergencies. I don't know if this is unconventional or not. I like knowing that I can walk away from my job at any moment and not have to disrupt my portfolio for a year. And the way things go, you usually quit or lose your job and then some other emergency happens. So, I like having a fund set aside for that contingency, which I do not consider improbable at all.
I don't like dipping into my 12 months of living expenses for emergencies. I don't know if this is unconventional or not. I like knowing that I can walk away from my job at any moment and not have to disrupt my portfolio for a year. And the way things go, you usually quit or lose your job and then some other emergency happens. So, I like having a fund set aside for that contingency, which I do not consider improbable at all.
Re: How many months of expenses in emergency fund?
Yes agree with you. When you are out of work and living on your emergency fund, you need another emergency fund in case something unexpected happens that throws your bare bones budget off.
Re: How many months of expenses in emergency fund?
To me it's just known as my checking/savings accounts, but it's about 9-10 months of "expenses while employed." However, if I lost my job, I have certain expenses that I'd cut for sure, which would extend these funds out to about 14-15 months of living expenses, not counting unemployment benefits. If that runs out, I have taxable investment accounts that I could tap in to.
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Re: How many months of expenses in emergency fund?
I keep one months income(probably 2 months spending in emergency ) in savings.After that I would use my portfolio (or more likely my credit card at first)
John
John
Re: How many months of expenses in emergency fund?
I voted 12-18 months.
I have a couple thousand in checking/savings combined for immediate expenses/emergencies. I was keeping $15k in a MM account, which will cover a year+ worth of current expenses, but I have since bought $10k of I-Bonds for this year, and will buy another $10k for 2014 next month which will become my emergency fund. That $15k in my MM will go towards short term savings. My investments are mostly taxable at the moment and can be tapped in the case of a longer emergency if needed (I'm in the same boat as Geist regarding the Roth IRA).
I have a couple thousand in checking/savings combined for immediate expenses/emergencies. I was keeping $15k in a MM account, which will cover a year+ worth of current expenses, but I have since bought $10k of I-Bonds for this year, and will buy another $10k for 2014 next month which will become my emergency fund. That $15k in my MM will go towards short term savings. My investments are mostly taxable at the moment and can be tapped in the case of a longer emergency if needed (I'm in the same boat as Geist regarding the Roth IRA).
Re: How many months of expenses in emergency fund?
Wow! Are you retired?jon-nyc wrote:About 2 years liquid. We also have another 3-4 years in ibonds which could be thought of as a secondary emergency fund i suppose.
Re: How many months of expenses in emergency fund?
I've target 6 months, but reality has been a range from 1 month to 12+ months. Much of the time it's been closer to 1-2 month, and using portfolio in emergency, but last crash, did feel some stress at the bottom, and was trying to liquidate a position near the bottom. Turns out it was harder than I had planned, and I had both account access problems along with a little liquidity problem. Had it been easier, I would have dumped equities right near the bottom. As luck would have it, things turned the corner and I never got around to touching the position, and it has since recovered and more!Johm221122 wrote:I keep one months income(probably 2 months spending in emergency ) in savings.After that I would use my portfolio (or more likely my credit card at first)
John
After that close call, I kept a larger account, with reached a max when I cashed out stocks to buy a new car. Had the cash sitting in an account for a number of months, but final selection and purchase of the car was difficult, and later abandoned. The cash position sat a little while longer as an emergency fund before reducing it. It's now standing around 6-9 months, but as I'm reallocating some of the funds for expenses and investments, it could go below 3 months for a short time until it gets replenished. Not totally orthodox, but gets the job done for me.
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Re: How many months of expenses in emergency fund?
We are building it higher. I voted for 6 - 9 months. Cash is king!
John C. Bogle: “Simplicity is the master key to financial success."