Monday, April 9, 2012

How Big is Your Emergency Fund?

I've had an emergency fund for several years now, and it has come in handy more times than I care to count.  When I first started reading personal finance books, the advice was to have an emergency fund with three month's worth of living expenses in it.  Then the economy tanked, it started taking people much longer to find work after layoffs, and the advice changed to eight months.  Because I fear instability, I've always gone with the eight months advice, but I found that when I was unemployed for three months, I spent far more money than I had expected I would.

Then that made me wonder if I was miscalculating my living expenses.  I based my savings on the major expenses--shelter, groceries, cell phone, etc. and I didn't really take into account the life expenses like going to a movie or going out for a bagel with a friend.  Certainly, I could have spent less money while I was unemployed, but I was so incredibly bored and miserable that I needed to just get out of the house, even though getting out of the house seemed to always cost something.  It seems ludicrous to imagine being unemployed for more than a few months, but these days, it's a real thing.  Also, there's the fact that even if you find work, it may be a minimum wage job that doesn't pay all the bills and the emergency fund has to supplement.

This is all very depressing, but I guess my point is that if this is a fund that is truly for an emergency, how do you know what an emergency is going to cost?  So, I'm honestly curious, how much do you put in your emergency fund?  Do you base it on a dollar amount, a number of month's living expenses or something else?  I settled on $10,000 because it's a nice round number, and should carry me through 8-10 months of life expenses, depending on how frugal I am.


5 comments:

  1. Mine's at $15K. I chose that number just because it would cover several months of bare expenses.

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  2. I base my emergency number on veterinary costs. When Wembley got cancer two years ago, I can't believe how much money we ended up spending in those seven weeks from diagnosis until the end. Some may find that silly, but to us it is worth it. :)

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  3. I don't always love mint.com, but I do like their goal setting feature because it helps you to figure out how much you need to do whatever it is you want. The emergency fund goal looked at my past few months spending, asked me how many months I wanted to save for, and then gave me an amount based on how much I had been spending lately. Mine came to roughly $13,000 for 6 months, if I don't change a single thing about my spending.

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  4. I've never had more than $1000 in savings. Its a sucky way to live. I made the mistake of trying to do a house rather than invest the extra 500 a month over apartment living that cost me. sigh.

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  5. Good insight. I save a certain percentage of my monthly income and part of other incomes I have.

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