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What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 6:56 pm
by rattlenap
For myself, I keep the often recommended 6 months worth of cash on hand given my circumstance. I do know that each person's situation is different and how much you keep depends on your circumstance. Yet nobody seems to agree what the sweet spot is. What do you think a good amount is?

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 7:01 pm
by Dottie57
rattlenap wrote:For myself, I keep the often recommended 6 months worth of cash on hand given my circumstance. I do know that each person's situation is different and how much you keep depends on your circumstance. Yet nobody seems to agree what the sweet spot is. What do you think a good amount is?

Be brutally honest as to how soon you could find the same salary after losing your job - maybe in bad economic times.
The start saving towards that amount. My employer has gone through many layoff during my 20 years with them.

Or if married with kids, have money so you can take time off for spouse or kids serious injury or serious illness.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 7:02 pm
by jjface
The right amount to me is what feels right. If you have $10k and feel it isn't enough then increase it. If you have $100k and feel it is sitting there doing nothing then you probably have too much in there.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 7:13 pm
by KlangFool
OP,

The standard advice is 3 months to 12 months for the normal time. If you expect a recession is imminent, 12 to 18 months.

KlangFool

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 7:14 pm
by Thrifty Femme
Dottie57 wrote:
rattlenap wrote:For myself, I keep the often recommended 6 months worth of cash on hand given my circumstance. I do know that each person's situation is different and how much you keep depends on your circumstance. Yet nobody seems to agree what the sweet spot is. What do you think a good amount is?

Be brutally honest as to how soon you could find the same salary after losing your job - maybe in bad economic times.
The start saving towards that amount. My employer has gone through many layoff during my 20 years with them.

Or if married with kids, have money so you can take time off for spouse or kids serious injury or serious illness.
+1

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 7:57 pm
by JonnyDVM
It seems the people most concerned with having an emergency fund are those least likely to actually need it. When we had student debt to repay we carried about 3 months. Now we carry roughly 6 months. The question you need to answer is how long would it take you to find another job if you suddenly got laid off? I would say it's sensible to carry three months minimum. One year max. When you have over a year of living expenses gathering dust in a bank account that's really getting conservative and one is losing a lot of value by not investing the money more aggressively.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 8:19 pm
by HIinvestor
For us who are retired or semi-retired, the question is how much do you need to pay your regular bills without having to liquidate assets? Since our incoming monthly pension amounts easily cover those, we really don't NEED an emergency fund but have one anyway, so we can cover additional unexpected things that may arise.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 8:35 pm
by The Wizard
Back when I was married and worked for a living, we had no emergency fund. Nothing too significant anyway.
My wife at the time had a job in a different field than I and we figured things would work out.
They did, except for the marriage.
Your mileage may vary...

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 8:43 pm
by PFInterest
"I do know that each person's situation is different and how much you keep depends on your circumstance."

That.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 8:49 pm
by BanditKing
My biggest risk of needing to dip into my EF is losing my job. Personally, I'm in a pretty niche field that would require me to relocate when/if I could get a new job. Ageism in the IT industry isn't exactly making it any easier.

I decided I need 2 years EF to feel comfortable.

If I was in a field that was less-niche, I'd probably dial it back to 12 months.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 8:52 pm
by gst
Depends a lot on your actual situation.

For me the right amount is very close to zero (basically just enough so that I don't need to keep track when direct debits arrive). For short-term emergencies I can easily use my credit cards (I don't keep a balance and have relatively high limits - my combined CC limits are much larger than my expenses in one full year). For longer-term emergencies I'm fine liquidating some assets (as I only recently moved to the US most of my assets are in taxable accounts from which I can withdraw without penalty).

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 9:14 pm
by rattlenap
BanditKing wrote:My biggest risk of needing to dip into my EF is losing my job. Personally, I'm in a pretty niche field that would require me to relocate when/if I could get a new job. Ageism in the IT industry isn't exactly making it any easier.

I decided I need 2 years EF to feel comfortable.

If I was in a field that was less-niche, I'd probably dial it back to 12 months.
Just curios, but since your EF is so large (2 years) where do you keep it and do you do tiers?

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 9:19 pm
by amphora
I think the bigger question is what counts towards an emergency fund. I would count all cash, CDs and liquid fixed income that's not held in a retirement account but NOT available credit lines or stocks.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 9:30 pm
by KATNYC
It depends on if you have a stable career or stable business. If you can get a new job or income source right away, maybe you don't need an emergency fund but for people who know it will take more time to find a new source of income, 6 - 12 months is a good idea.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 10:01 pm
by spdoublebass
For myself it is 3 months worth and I can't believe how much better I feel having that amount. I've always heard I should have one and never did. Then, even when I started saving one, it was instant peace of mind.

As stated above, I am also curious where people put their ER if it is over a years worth of expenses. I've always wondered about keeping it in short term corporate bonds (VCSH) in a taxable account. I know people say not to do this because of the interest/dividends/yield but being in a lower tax bracket I've never had a problem paying taxes. I could be missing something huge though. I'm only asking this to learn. For me 3 months worth in a savings account is fine.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Sun Jun 18, 2017 10:44 pm
by misscourtneyk
I don't feel comfortable unless I have at least $7000 in cash, so I guess that's the right amount for me. However, that's 7-9 months worth of expenses for me. I have a fairly stable job but I just feel better knowing that if my job ended tomorrow, I'd be good to go for half a year.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 5:55 am
by Nate79
My entire accounts if my EF in an actual emergency if it means not living on the side of the road and eating dog food.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 6:43 am
by SimplicityNow
The answer is so variable that the question is almost unanswerable. Job, pre or post retirement, total assets, etc. create so many variable there is no sweet spot. Even for a specific individual the amount changes constantly based on so many circumstances.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 7:48 am
by Leemiller
My spouse and I earn enough that we could dial back our expenses and live on either income if needed, but it could take some time to find a new job and our fixed expenses are relatively high. So we keep about 6-8 months in our bank accounts. We also have taxable acccounts which I mentally include in our overall emergency fund.

I don't think three months is enough for a single income household, or a household where both incomes are needed. By the time you get interviews, the hiring process for some positions can take a few months. So I think 6 months minimum.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 8:33 am
by jadedfalcons
I did have 1.5 years in my emergency fund, but I'm in the process of dialing it back to about 7 months worth. That's just what I keep in regular bank accounts, my taxable accounts would support me for another four years. My taxable account also has a little bit of money in bonds; not the most tax efficient investment, but during the last recession, I went 8 months with only 2 paychecks, so security & peace of mind mean a lot more to me.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 8:41 am
by dratkinson
While working: 3-12 months in cash/near-cash equivalents, or more it you like. The last/largest tier of my formal EF is a double-duty (it's also part of my bond allocation) safe/recommended bond fund so technically my EFs total >6-years in cash/near-cash equivalents.

In retirement: 5-years in cash/near-cash equivalents, so you don't need to sell during a down market.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 8:50 am
by poker27
I have 12 months in my official EF (I bonds) and then have bonds in taxable for the next level.
My job is certainly not in jeopardy. However I do not have specific degree that will allow me to run out and get another job with the same income tomorrow. I would imagine that during a economic downturn, it would be very difficult.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 11:00 am
by deskjockey
As others have stated, I think there are too many variables to set a rule of thumb on this. For us (two feds who can live off of one income), it is three months worth of expenses. That said, I currently have almost 9 months' worth in cash or cash equivalents because we're saving up for a few near term goals (less than 3 years out), including finishing the basement and getting a new car.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 11:06 am
by corn18
I have enough taxable investments to not need an EF. But I keep 6 months expenses in our checking account in case I die. Seen too many grieving spouses trying to figure out how to pay the bills while burying their better half. So I'll make it easy on my wife.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 11:33 am
by KlangFool
spdoublebass wrote:For myself it is 3 months worth and I can't believe how much better I feel having that amount. I've always heard I should have one and never did. Then, even when I started saving one, it was instant peace of mind.

As stated above, I am also curious where people put their ER if it is over a years worth of expenses. I've always wondered about keeping it in short term corporate bonds (VCSH) in a taxable account. I know people say not to do this because of the interest/dividends/yield but being in a lower tax bracket I've never had a problem paying taxes. I could be missing something huge though. I'm only asking this to learn. For me 3 months worth in a savings account is fine.
spdoublebass,

1) My EF = 1 year of expense plus the half year of college expense for 2 kids.

2) Bank Checking account plus Vanguard Money Market fund.

3) I can afford to do this because my portfolio is around 18 times my annual expense excluding the EF.

KlangFool

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 11:43 am
by Jack FFR1846
I combine the designation of our savings bonds as EF and a portion of bonds. I proved to myself that the savings bonds indeed work even faster than my Ally savings account. Having tuition payments due, i initiated a one day Ally transfer and then walked over to my credit union to cash a couple savings bonds. The Ally transfer initiated on Friday didn't move until Monday and is on hold. The bonds were immediately available.

That said, I have 7 years of spending in savings bonds.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 2:26 pm
by BanditKing
rattlenap wrote:
BanditKing wrote: I decided I need 2 years EF to feel comfortable.

If I was in a field that was less-niche, I'd probably dial it back to 12 months.
Just curios, but since your EF is so large (2 years) where do you keep it and do you do tiers?
Yes, it's tiered. Some is at Ally Bank. Some is in Series I Bonds at treasury direct, and the bulk is in VWIUX (Vanguard Intermediate-term Muni Admiral). There is some risk to NAV with that fund, but even in a "crash" situation it wouldn't be enough to kill me. I have other things in taxable I could tap into as well if I truly had to.

Re: What Is The Right Amount For An Emergency Fund?

Posted: Mon Jun 19, 2017 7:02 pm
by scubadiver
Our cash emergency fund is about 5 months of expenses. If I really needed to, there's easily a years worth of additional expenses that I could cover out of our Roth accounts with no penalty for early withdrawal and even under a 2008-9 market crash scenario. While I would obviously prefer not to do that, doing so wouldn't put our retirement at risk.

I'm a federal employee and fairly employable outside gov't if I needed to pull that lever. We live on just my income. Theoretically though my wife could return to work in a year with little impact in terms of after-school care expenses.

Are we bullet proof? Heck no. Do I sleep easy at night. Yep.

Scubadiver