No. of Recommendations: 0
I don't post here much, but lurk occasionally. I thought this would be the best board to get a poll about how large an emergency fund should be. From various places, you can get a finance guru to recommend anywhere from 3 months to a year's worth of emergency fund. I wondered what you Fools had. If you are focusing on paying down debt and you haven't fully funded your E-fund, just pick the one that you are saving toward eventually.

Legend
= Equal To
> Greater Than
< Less Than

How many months of expenses does your Emergency Fund cover?
= 3 Months
> 3 to < 6 Months
= 6 Months
> 6 to < 9 Months
>= 9 Months

Click here to see results so far.

Print the post Back To Top
No. of Recommendations: 0
I think it largely depends on your level of financial and employment security.

Fuskie
Who generally recommends 3-6 months but suggests more if your employment situation is nit stable, like your a contractor, but would not recommend less...
Print the post Back To Top
No. of Recommendations: 0
Hi Fuskie,

The general 3-6 months is a really big variation, for me. Plus you have all those factors like are you a single income or dual income family, is it 3 months of bare bones or regular budget, etc. I've tried to figure out what the experts' assumptions are when touting whatever "rule" they pick, but no one ever really says...
Print the post Back To Top
No. of Recommendations: 0
I have 10 months at the moment and it makes me anxious, but I am self-employed.
Print the post Back To Top
No. of Recommendations: 5
The general 3-6 months is a really big variation, for me. Plus you have all those factors like are you a single income or dual income family, is it 3 months of bare bones or regular budget, etc. I've tried to figure out what the experts' assumptions are when touting whatever "rule" they pick, but no one ever really says...



I figure the term EMERGENCY means just that. Emergency.
I do not know who They are, or what They mean, but, To ME, this means
if all income stopped tomorrow, for how long could the bills be paid?

and not

if all income stopped tomorrow, for how long could we live exactly like we do, without changing our lifestyle?

and the difference between those two could likely be the difference beween having an 8 month efund and a 3 month efund - depending on how often one dines out, goes to movies, buys clothes, gets haircuts, goes to Starbucks...

The question, then, it what does it mean to YOU?


peace & efunds
t
Print the post Back To Top
No. of Recommendations: 2
Yeah that is always a problem with the definitions. Is the emergency one of us being out of work or both of us? With or without STD or LTD payouts?

We have enough in the savings account to cover one of the following:

1. 12 months of the mortgage
2. Our max family out of pocket deductible for out of network.
3. 6 months of all expenses assuming son is pulled out of daycare
4. 9 months if we still have one income coming in or STD/LTD payments as our income

Then we could start raiding ROTH IRAs, ESAs, Traditional IRAs, and 401ks if needed. If it was a death, well we've got plenty of life insurance on both of us approximately 7-10 years of replacement income.

We're not wealthy, I'm just part squirrel.

Lara Amber
Print the post Back To Top
No. of Recommendations: 0
and the difference between those two could likely be the difference beween having an 8 month efund and a 3 month efund - depending on how often one dines out, goes to movies, buys clothes, gets haircuts, goes to Starbucks...

Personally, I have viewed it as living exactly like we do without changing our lifestyle. I usually have a minimum 6 months on hand but usually more. I'm over 12 months right now. If I were to cut back on the extras, I could extend it a lot longer because I have a bunch I could cut. Actually, if it was just me to lose my job in our two income household, I wouldn't need to go back to work if we tightened the belt.

PSU
Print the post Back To Top
No. of Recommendations: 0
Ditto - we always have more saved than we need in the short term. But we are exceedingly frugal and cheap so lots of savings/investments result from spending very little money on non-essentials.
Print the post Back To Top
No. of Recommendations: 3
Ditto - we always have more saved than we need in the short term. But we are exceedingly frugal and cheap so lots of savings/investments result from spending very little money on non-essentials.

I wouldn't say ditto. I spend a bunch on non-essentials. That's why my efund will last a lot longer if I cut back during unemployment.

PSU
Print the post Back To Top
No. of Recommendations: 0
I picked 3 months because I probably have that saved just in my 'emergency fund' although I do have some other savings.

To start out, 1000 bucks will probably cover most random emergencies that pop up but would be a bit anemic for a job loss.
Print the post Back To Top
No. of Recommendations: 0
My answer is based purely on my current expenses and the balance of what I consider my e-fund.

Since we're talking expenses and lengths of time, I assume the question is related to being unemployed or unable to work... in either of those cases two additional factors would come into play:
--> 1) Some alternate (temporary) income would kick in (severance/unemployment/disability)
--> 2) My expenses would drop (I would not be going out weekends, not be commuting, not be paying for lunches at work, would likely drop a few other expenses as well).

So in reality my answer should be 50-100% more time then I chose...
Print the post Back To Top
No. of Recommendations: 4
yddeyma,

I'm a bit over 9 months right now, I think. I'm pretty close to my target.

I just moved to a more expensive location, bought a house and dumped a bunch of my excess cash into it. At one point I think I only had about 6 months, which was making me nervous - then some of my fixed income investments got called and that fixed that. Since experiencing a bout of unemployment in 2008, I've tended to keep 12 months or more in cash on hand.

My 12+ months would have lasted a good deal longer, assuming reduced expenses from staying at home and unemployment insurance. When I was unemployed, my unemployment covered most of my expenses - all but the outrageous health insurance premiums I had to pay, which were substantial.

Which brings me to another point. People assume that when unemployed, expenses will go down. In my experience, most did by quite a bit. In fact I think they went down by about $600 to $800/month when I was unemployed; but that was completely offset by extra insurance and medical expenses I was not paying when I was employed. My employer folded, so there was no COBRA so my insurance payments went way up and what it covered was essentially nothing as it was a High Deductible Healthcare Plan and I never met the deductible.

So in general, I assume that what I'm spending today, I'll probably spend that much or more if I lose my job. Also while unemployment insurance payments are likely, they're not a given. And most importantly those can run out surprisingly fast - especially at times when you lose your job as a result of general economic distress when it's harder than normal to find a replacement.

So as they say, Better safe than sorry...

- Joel
Print the post Back To Top
No. of Recommendations: 5
The e-fund concept changed for us in retirement. We no longer need to concern ourselves with losing income...she sez with a wary eye on potential cuts to Social Security, the lion's share of our retirement income :-/

I no longer think of my e-fund as covering regular living expenses. It's now for major insurance deductibles, major work on the house, and the biggest potential expense: uncovered health care expenses (such as hearing aids, assisted living/nursing home/aides needed in the home).
Print the post Back To Top
No. of Recommendations: 3
I no longer think of my e-fund as covering regular living expenses. It's now for major insurance deductibles, major work on the house, and the biggest potential expense: uncovered health care expenses (such as hearing aids, assisted living/nursing home/aides needed in the home).

I didn't answer the poll since e-fund doesn't apply since DH has been retired a few years and I am semi-retired. However, we do include the things you talk about in the budget. As a practical matter, if a really large expense occurred (think new roof for example - although we shouldn't have to have one for many years), we have a taxable account where we keep some money that we could use for that kind of expense without having to withdraw from a retirement account and have a large tax hit. That is, we use the retirement account more for regular living expense withdrawals and we would use the taxable account large irregular expenses. So I guess we could sort of think of it as an efund. It is equal to roughly a year's expenses.
Print the post Back To Top
No. of Recommendations: 0
Reposted to make it easier to read:

Which brings me to another point. People assume that when unemployed, expenses will go down. In my experience, most did by quite a bit. In fact I think they went down by about $600 to $800/month when I was unemployed; but that was completely offset by extra insurance and medical expenses I was not paying when I was employed. My employer folded, so there was no COBRA so my insurance payments went way up and what it covered was essentially nothing as it was a High Deductible Healthcare Plan and I never met the deductible.

To add on to what Joel said:

When I was laid off in 2008, my medical insurance went from $112/mth (employed) to $730(COBRA). I think that is the correct amount; I know I remember being amazed that anyone would think I* could afford to pay a huge amount for medical insurance when I had no income and was focusing food and shelter first.

Minxie

*I had some savings, received a severance and found a job quickly. The same situation applied to many people though who were not so fortunate. A better use of COBRA, IMO, would be to cover medical insurance premiums for a short time while the person looks for work.
Print the post Back To Top
No. of Recommendations: 3
A better use of COBRA, IMO, would be to cover medical insurance premiums for a short time while the person looks for work.

I'm not sure I understand what you mean by 'using COBRA to cover medical insurance premiums'. While COBRA was named for the budget bill (Consolidated Omnibus Budget Reconcilation Act) that made the right to continue to receive medical coverage from an employer into law, there is no government funding for COBRA. It's strictly between the employer and those who lost insurance coverage.

COBRA requires employers who offer medical coverage to offer medical insurance to former employees and the employee's dependents at up to 102% of the employer's cost for insurance, with the extra 2% as an incentive to help the employer with administration costs, so employers wouldn't drop medical coverage because they had to offer COBRA. Depending on why the insurance coverage was lost, there can be different timeframes that COBRA can be in place.

http://www.dol.gov/dol/topic/health-plans/cobra.htm

AJ
Print the post Back To Top
No. of Recommendations: 1
I'm not sure I understand what you mean by 'using COBRA to cover medical insurance premiums'. While COBRA was named for the budget bill (Consolidated Omnibus Budget Reconcilation Act) that made the right to continue to receive medical coverage from an employer into law, there is no government funding for COBRA. It's strictly between the employer and those who lost insurance coverage.

COBRA requires employers who offer medical coverage to offer medical insurance to former employees and the employee's dependents at up to 102% of the employer's cost for insurance, with the extra 2% as an incentive to help the employer with administration costs, so employers wouldn't drop medical coverage because they had to offer COBRA. Depending on why the insurance coverage was lost, there can be different timeframes that COBRA can be in place.

http://www.dol.gov/dol/topic/health-plans/cobra.htm


Oh, yes, I know how it is named and used. What I mean by a better use of it is that the law could have been designed so that the people who are already out of work and least able to spend a huge amount on medical insurance are better covered. A different approach might have been to require that the medical insurance premiums are covered by the employer at the same rate for three months if an employee has been laid off (not fired for cause).

The law is good in theory, in that medical coverage can continue uninterrupted so long as you have the funds to cover the premiums. It is inane in that people who are laid off have to add the employer-sponsored premiums into their budget at a time when they are least able to afford it. There just seems like there should be a better way around this problem.

Minxie
Print the post Back To Top
No. of Recommendations: 2
A different approach might have been to require that the medical insurance premiums are covered by the employer at the same rate for three months if an employee has been laid off (not fired for cause).

A nice idea (along with universal coverage). However, the reality of the situation is that it would have never gotten through Congress, because there are too many employers that would have lobbied that they would drop medical coverage completely, rather than have to pay the additional costs to lay off employees. (After all, your differential was about $650, so it would have cost your employer an extra $2k to lay you off. Multiply that by, say 1,000 employees when a factory gets shut down, and it's an extra $2 million.) And nobody wants to be the Congressman who voted for the law that gave employers the excuse to drop medical coverage.

And given the system that was in place at the time, where you would lose your medical coverage the day you walked out the door, either voluntarily or involuntarily, the ability to continue coverage was a huge step forward. It cut one of the ties that employers had on employees, and allowed employees to be more proactive about choosing the best employment situation for themselves.

AJ
Print the post Back To Top
No. of Recommendations: 5
Very late to the party, but I thought I'd contribute.

I voted 3-6 months but that isn't the full story. Ideally, I'd want 6 months or more. We're a two income household and for the period from October 2009 until May 2012, my husband was either unemployed or underemployed, working at jobs that bought in some income but paid less than half of what he'd been on before. While I just sucked it up and ensured that the mortgage and all the bills were paid, my biggest worry during that time was that something would happen to my income since he was bringing home less than our monthly mortgage payment.

(DH paid what he could when he had income. We apportion our contributions to the joint account for bills, etc, by percentage of joint income. Now he has a reasonable paying job, I think we're at 60% (me) and 40% (DH).)

Anyway, I think that if you're part of a couple, after you've got an e-fund, the next aim money-wise is to get to the point where both of you can cover the mortgage and essential bills out of either salary. It wouldn't be comfortable, but if my job went south tomorrow, DH's salary will now keep the roof over our heads and the utility bills covered. (I breathed a huge sigh of relief when we got to that point.)

- Pam (Hello, everyone! I'm still alive, just working like a maniac now my business has moved regions.)
Print the post Back To Top
Advertisement