Comments on: Emergency Savings Fund: Why, How Much, and Where?

By: Elle

Elle — Wed, 01 Feb 2012 23:29:15 +0000

We have managed to save $60K over the last 10 or so years. I’m not sure how. We certainly are not wealthy, but we are pretty frugal. We don’t have a “plan.” We don’t have a budget and we’ve had 2 lay offs in that 10 years. We also are contributing to our retirement accounts–we have about $100K between us in those, not nearly enough given our ages, really, 46 and 49. We’re planning to beef those up this year. We have about $100K equity in our $300K home. We both drive old cars…one is 10 years old and one is 8 years old. Wonder when we will need to replace one? Now that we have our emergency fund in place, we need to start thinking about 529′s for our 3 kids…

By: Fredy

Fredy — Fri, 22 Jul 2011 03:31:12 +0000

I found somebody that thinks and does like me. I managed to save actually 10 k. But 50% of that money belongs to me and my wife and the other 50 % to my two sons .

Trevor , should you pay more debt monthly with your free income that will make you save more money . You must save between 20 to 35 % of your income.

I keep my emergency money (ER) in a security box in my personal bank. I am not worried about investing my ER money. That money is reserved for unexpected expenses. I always should keep 5k as a minimum in my savings account and there is no maximum.

Once you have control of your savings you should consider a real estate or a penny stock investment and/or EE treasury bonds . 40% of my portfolio will be in cash ,30% in stock or real estate debt and 30% in treasury bonds.

By: alice

alice — Sat, 30 Apr 2011 12:34:19 +0000

I totally agree Natalie. We are in the same boat. I am a SAHM and my husband works for a non-profit organization. We have only a little left over each month, which we are applying to credit card debt. We have 1,000.00 for an emergency fund (left over income tax from this year). Anything above that will require income tax refunds annually. It is never too late to start a plan and turn things around. Last year I got a (very) part-time job, but it helps. Our goal is to do our best to apply ALL of that money to debt and savings. It is tough, but if you track expenses closely, it can be done. In a perfect world we would have boo-koos of money in retirement, savings, and be debt free by 35. However the reality is I have 2 in diapers, and I just paid 4.00 a gallon for gas.

By: Natalie

Natalie — Wed, 26 Jan 2011 04:47:32 +0000

Until recently I’ve been discouraged by the idea that I really needed 3-6 months in savings for an emergency. If you are in an income bracket that needs nearly all income for daily expenses this can take many years or more. However, I recently realized that this is not the case for some people, including my family.

Here’s my reasoning…

The 3-6 months is generally for covering a period of unemployment. However, if this happens I would get unemployment covering 60% of income. I wouldn’t need to contribute to my 401k during unemployment so that would cover another 10-15% and I wouldn’t have to pay FICA or medicare on unemployment wages which would save another 7.65%. I wouldn’t be contributing to my HSA, which is another 5-6% of gross income. So even without drawing from savings, I would have from 82-89% of my income covered. If I ate beans and rice and didn’t buy anything new for a few months I could probably get by without another 10% of my income temporarily. This means that I would only need to withdraw 10% of my normal income from savings. Even if I were unemployed for 6 months, I would still only need about 1 months take home pay to get by. Of course, higher income people would get less from unemployment, but they shouldn’t have as much trouble saving.

Renters will need less emergency funds than homeowners and you should look at your health insurance to determine what your deductible and out of pocket maximum are. Your emergency fund should be the greater of any of these needs. In my case that’s only 3000k or 1.5 months take home pay, not 3-6 months. I’m sure we would all like to have more in savings, but for those of us just getting started with our financial picture, I think it’s better to be realistic. I could fund this with just a couple of years of tax refunds. 6 month of income would take me about 8 years.

What do you think about the size of emergency fund you need? Would you set aside more or less?

By: me

me — Tue, 22 Dec 2009 23:56:04 +0000

I got a dollar. I’m hoping on having two dollars in a couple years.

By: Matt

Matt — Sun, 13 Sep 2009 05:52:57 +0000

Michael,
You said what you said a couple of months before the market went down. I’m assuming that you don’t feel the same way now. What you’re doing is great as long as there is a minimum of 8 months worth of expenses of “cash” available to use immediately (given that credit card balances, if any, are paid off). Put the cash in a high yield account and you can’t go wrong. It’s not a matter of “if” you would have to tap into it. These days it’s a matter of “when” it you would tap into the cash. There is truth to the saying “Cash is King!”

By: Chris

Chris — Mon, 17 Nov 2008 22:24:01 +0000

I agree. With these rough financial times, I believe more people are going to realize just how critical it is to have an emergency fund. I also agree with those funds being very liquid with quick easy access. High interest savings accounts may be one of the better options. I’ve been concerned though about the safety of my safety net given the current banking crisis. I was unaware that the FDIC had changed its limits. Then I came across this at my online bank.

FDIC now insures up to $250,000 per depositor. Individual and joint accounts are insured separately, so if you have both types of accounts, your total deposits can be insured up to $500,000; thatÃ¢â‚¬â„¢s up to $250,000 in all your individual accounts and up to an additional $250,000 in your joint accounts.

source: VentureBankDirect.com/faqs.php

By: Amanda

Amanda — Sat, 23 Aug 2008 04:27:46 +0000

I have $10,000 laddered in four CDs at ING at three month intervals. This way I don’t have to cash in ALL of the emergency fund at one time, and I lose only a bit of interest.

By: Michael

Michael — Tue, 24 Jun 2008 00:03:08 +0000

Dan-

Thanks for the explanation. Not wanting to sell at a low makes sense, but I still don’t see how that makes cash a superior option. If a mutual fund grows at 10% on avg, but sheds 3% the day before I need to use it as an emergency fund, isn’t that still better than a MMA that grows at 3% overall?

There’s a chance the fund grows less than an MMA over the years it’s sitting in an emergency fund, but from what I understand that seems unlikely. Am I missing something here?

By: Dan

Dan — Mon, 23 Jun 2008 21:27:22 +0000

Micheal-
The downside to that (depending on your investments in emergency) is not the lack of liquidity (most likely at most 4 business days in your case) but rather “timing risk”. The risk that your water heater/furnace/car/muffy-your-favorite-dog needs a sudden wad of cash thrown at it just as the market decides to shed 3%… I would much rather pull money out of a seperate cash account (savings, mma, etc.) than sell-at-the-bottom (noone gets rich doing that).