Tell All Thursday - What’s Your Emergency (Fund)?
When we originally started seriously getting out of debt, we set our emergency fund at $1000 kind of arbitrarily. There was a reason specific to our family - I had had about $1000 for the past two years in our savings account and it was usually enough to bail us out of any problems, but mostly, it was honestly because I’d heard that number thrown around so much (thanks to Dave Ramsey) that we chose it.
When $1000 was serving us as a default emergency fund in the two years prior to this blog, our family and home situation was quite different than it is now. We had one child and we rented an apartment. Now we have two children and we own a home, which adds its own set of challenges. Several times in the past two years we’ve been hit by unexpected situations that the $1000 wasn’t enough to cover (new furnace, replacing car engine), and a few other times we’ve completely emptied the fund to meet the challenge of an emergency (when my dad passed away, different car repairs, home repairs).
So we made the decision for 2009 to raise the emergency fund to $2500. I naively thought that wouldn’t be too difficult - it hadn’t taken too long to get to $1000 and when we’d had to use it we’d built it up again quickly. But almost like the world was challenging us, increasing to $2500 has been full of setbacks. Not only in draining the emergency fund when emergencies have happened, but also having to divert money that would go towards the emergency fund to pay for things that have come up (most recently, taxes that I’d underestimated, and a repair to our front porch which had a rotted-out post so the roof would not start to sag.) And with the worsening of the economy, we’ve had income setbacks - I am earning less than I was a year ago with my different freelance efforts, and my spouse’s salary has been frozen for the forseeable future.
We’ve been able to maintain the status quo without going into more debt, for which I am thankful. And I’m not unhappy or complaining - it is more bemusement. And we forge on! However, my priorities for after the emergency fund have begun to shift. The emergency fund stands at $2200 as of now. Will it stay there? Who knows. But I anticipate being able to reach the desired $2500 in May. At that point, we were going to start saving for a new-to-us car. But I think we’re not, yet.
I started this blog to help us get out of debt. And it has, greatly. I’ve shifted priority in 2009 from eliminating debt to saving money, and I’ve come to the realization that it is time to shift it back. We’re on the home stretch, with one non-mortgage debt remaining of about $9000. Yes, the Saturn could die. Yes, we could need to replace it. That is still true - but at the same time, eliminating our debt is also an important priority and for now, we’re going back to it. Finances is part practical and part psychological - and my brain needs to focus on debt elimination right now for the simple fact it is concrete and in the here and now.
So the student loan will soon come under attack. We’ve been paying $300 a month towards the loan so far in 2009. The rest of our budgeted towards debt repayment amount, at least $500 and sometimes more, has gone to the emergency fund. But now we’re going to flip that. $300 a month will go into our “long term savings” which is a new-to-us car fund right now. And then, $500 or more per month will go towards the student loan. Hopefully more, but that depends on my income earning ability. I’m working on it, though. :) Viva la snowflakes!
Debt updates and a new timeline next week! I need to play with numbers and work out some scenarios. :) I know that many of you will find this crazy, and others will find it right on, and that is okay - agreement is optional.
What’s your emergency fund minimum magic number and what factors play into that? What comes next - debt repayment or other priorities?
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April 23rd, 2009 at 12:28 pm
I think $1000 is way too low for most people. A major car repair alone out of warranty can run a couple of thousand easily. If you have a family, or other dependents, it can get expensive quickly.
My personal comfortable number is $10k in cash. I’m at around $7k right now, since I dipped into it to pay my car off, but my plan is to be back at $10k by end of May.
April 23rd, 2009 at 12:43 pm
My emergency fund goal started at $1000. I’m going to hit that in May, and most of what’s been going to savings will then turn to CC debt (thankfully, there’s not much left). Once that’s cleared, probably July, if not June, I’ll return to the emergency fund, but instead of $1000 for any old emergency, there will be emergency categories. $1000 for automotive emergencies, $1000 for medical emergencies, $500 for pet emergencies… and once THOSE are met, I’ll turn back to the original $1000 and begin building that to a 3-6 month fund. And there are still places to go after that!
At least… that’s the plan.
April 23rd, 2009 at 1:14 pm
My ultimate goal is $10-12k in an EF - right now I stand at about $1900. My minimum magic # I would say is $2000, and so far I’m calling my $1900 good enough. All last year I tackled my $20k in student loans. I paid about 60% of that last year. While I really wanted to take out the rest of it this year with my monthly savings + annual bonus (I feel very lucky to still be receiving a bonus this year in this economy!), I’m getting married next year and there is no one to help with that cost but me (my fiance makes significantly less than I do). While I’d love to be rid of my student loan sooner, I do not want to delay my wedding. I have opted to save more per month for my wedding right now, while still paying significantly more than my min payment on my loan. Right now I owe just $2900 more on my student loans, and should have them paid off by August. If I weren’t splitting my savable income between the wedding and my loan, I would have been rid of it by now. At times I really just want to pay it off - I know what you mean about psychologically wanting that debt gone. It’s been really hard for me to *not* pay it every penny I can, but I think it will be for the best in the end.
April 23rd, 2009 at 1:26 pm
My emergency fund is closer to $5000. I’m engaged and have been living with my partner for about 7 years and we own a home—but it is in his name only, though I am his beneficiary if anything should happen to him. We live in the SF Bay Area, have no children (though we do have 2 cats), and carry no credit card debt. Aside from the mortgage, my student loan (about $8000) is the only debt we carry.
I’ve chosen $5000 for several reasons. If my partner and I should decide to go our separate ways, I need to be able to afford rent in the Bay Area. I have also increased the deductable on my car insurance to save money on the premium, so I make sure I have enough money in the bank to cover the deductable should I get into an accident. I also have enough to cover emergency vet bills. The emergency fund usually gets up to about $10,000 by the end of the year at which point I transfer money to my RothIRA, and redistribute funds for other purposes—wedding, vacations, home improvements, investments. I save for these things separately throughout the year as well.
April 23rd, 2009 at 1:42 pm
we broke a cardinal ramsey rule and started paying down debt with NO emergency fund. And halfway through our debt repayment, we put $500 away, which is more or less where our EF stands now. Ultimately, our goal is a $5,000 EF. We’re in an industry with a lot of job security, no kids, we still rent. That will be enough to cover most eventualities. Later, we’ll re-assess.
April 23rd, 2009 at 1:54 pm
My Emergency Fund is only at $500, and will probably stay that way for awhile. I had originally intended to get up to the $1000 mark, but I felt like I wasn’t getting anywhere with the savings and on my debts and it was really sapping my motivation. So I’m focusing on the credit card debt which keeps me really motivated to move forward. It’s just me and the cats right now, so while I’d like to have some more cushion there, I’m not going to beat myself up trying to get there. I should have the credit card I’m focusing on right now paid off in September or October, and I’ll probably re-evaluate pushing it higher then.
April 23rd, 2009 at 1:56 pm
I have come out of grad school with a large amount of student debt, which I hate having… But realizing that I will need liquidity for a major transition in the next year, I am trying to turn my motivation from paying it down to bumping my emergency/transition fund to 10,000 by next year: giving me with a lot more flexibility if I need to move before I have found my next job. My head knows that this is the best thing, and that my interest rates aren’t THAT high, and that it will take a long time to pay back no matter what… but my, do I relate to the pull to attack the enemy in the here and now!
April 23rd, 2009 at 1:58 pm
My husband and I used to have a $2,000 emergency fund and it served us well for many years. Since we purchased our house we have set our fund at $10,000. It stays there most of the time and we haven’t had to dip into it. It has been a great comfort in the economy we are facing right now to know if one of us lost our jobs we could maintain our standard of living.
April 23rd, 2009 at 1:59 pm
I’ve greatly enjoyed reading your blog.
My emergency fund WAS $1500, but after buying a house in ‘07 & having gas prices spike in ‘08, I was unable to build it up any further. My govt job has had no pay raises in 5 years.
I drained my emergency fund to save the life of one of my pets in 11/08. With the fund drained, in 12/08, another of my pets (I have 5 dogs) had a series of life-threatening seizures that required a lot of vet care, throwing me further into debt.
Just as I began get some money back into the fund, another of my dogs got a serious cruciate ligament injury last month, which could require $2500 surgery.
I have learned several things from this:
1. If you have multiple pets, look into some sort of pet insurance. I was doing so when my dog was injured in March, but didn’t get it in time.
2. Seriously consider whether you can afford to own multiple pets, & cover any potential vet emergencies. I never expected to pay so much in just a few months.
2. $1500 IS NOT enough of an emergency fund for multiple pets AND a house. I have started a “Mariah’s Surgery Fund” & am having my very first garage sale in May to raise money. I’m also checking out part-time work.
3. I believe it’s Suze Orman who encourages you to save an entire month’s salary as an emergency fund. I recently reorganized my debt into a lower interest rate & will be working to rebuild my fund ASAP, according to her recommendation.
Colliegurl
April 23rd, 2009 at 2:03 pm
My magic number for the baby e fund has been 5k but that is still too low for me. We have 2 kids and live in a high cost of living area and our mortgage and taxes is over 3k. I actually just received a rather large unexpected bonus and put 10k into a 6 month CD that I will eventually add to the efund or use to pay off my husbands truck. While I would love to be car payment free I am still struggling with not having that money available if my husband loses his job.(my job is extremely secure) Granted we would have over 400 more a month to really tackle the 30k in student loans we have. If we weren’t in a recession the truck would be paid off already but everything is different now.
April 23rd, 2009 at 2:43 pm
My emergency fund as it stands right now is 32,000 - although I plan on taking a large chunk of that and paying down my mortgage so I’ll probably leave about 12-15k in there. I think 12-15k is my minimum that I would feel comfortable with having in an emergency fund and closer to 20 would be better.
April 23rd, 2009 at 2:50 pm
Well, my minimum EF was going to be $2,000 (you managed to convince me that $1,000 wasn’t enough), but I got a tax refund this year while my EF was sitting at $1400, so I put half on my credit line debt and half into my EF, so now my EF is up to $2400. It’s a nice number because it’s close to my monthly income. But now you’ve gone and upped the bar again… Yep, I’m a copycat.
I’m still saving for vet and house emergencies though. I’m putting away $50 a month for vet emergencies and about a hundred a month for house repairs - and I plan on keeping that up ad infinitum.
April 23rd, 2009 at 2:54 pm
Did you hear about Suze Orman’s advice on making minimum payments on debt until you’ve accumulated 8 months worth of expenses in an EF? I’d be interested in your take on that.
April 23rd, 2009 at 2:58 pm
We have about 8 months of expenses in our emergency fund (if one of us is out of work). If we’re both out of work, it’s about 4 months of expenses.
April 23rd, 2009 at 3:11 pm
I feel like quoting Rosannadanna: “there’s always something!”. Just as soon as we slay one financial monster, another pops up. Right now we have no true EF, just $ sequestered for specific, predictable events. I want to kill our cc bills as soon as they emerge from their low interest periods, ’cause rates are getting hiked through the ceiling; THEN, we are looking at over $10K for our part of the kids’ student loans; THEN we’ll probably need to replace a vehicle…..
Even having as good an understanding of our expense as I do, something always gets added: just this last month we raised our auto insurance coverage significantly since we sent off one car to college with our youngest (yes, she helps, but not all). The other’s graduating so something special is in order. Every bill seems to have increased fees/taxes, sneaking up ever so little each month.
Never seem to get ahead, and find enough to set aside for a true EF.
Oh, and DH’s work has cut back on OT, so less income. Ugh.
April 23rd, 2009 at 4:16 pm
We are still new to the game of managing our finances better. We’ve got $1600 in our emergency fund at the moment and I add $200 a month to that. We haven’t had to dip into it so far. I’d like to get that account up to a much larger figure - enough to cover expenses for 3 months - we have a long way to go to get to that. At the same time we are making inroads on our credit card debt - that should be cleared in the next 3 months. After that we can sock more away.
April 23rd, 2009 at 4:21 pm
Our EFund goal was $1,200 and we started in April of 2008, so we just reached our goal this month! yay us! I celebrated by increasing our savings amount (we recently paid off a small credit card that freed up it’s monthly payment. I don’t worry about having a set saved figure, more of having a “we WILL set aside XX a month.” Even though some say to focus on savings vs. paying off debt, we are continuing to focus on both, and have another small credit card set to be paid off June of 2009, then we attack another.
April 23rd, 2009 at 9:41 pm
We have about $12K in our savings accounts which I would consider to be our emergency fund(s). We have one joint savings & I maintain my own. The rest of our cash (about $28K is in CD’s). I would like to have closer to 25K-30K in our “emergency fund”. Six to 9 months ago, I would have been content with $15-$20K but with the economy, I would feel more confortable with an increased amount.
I think debt paydown is extremely important but right now, in my mind, CASH is KING!!
The only debt we have is our mortgage & we are paying that down, but also using it for tax purposes. I know that goes against all the DR preaches but right now for our personal situation, it is best for us.
We have never referred to our savings as our emergency fund, but that is where unexpected expenses are paid from. So, regardless of what it is called, I want more of it!
April 23rd, 2009 at 11:32 pm
We have 8 children, a house and my husband is self-employed in the construction business. An emergency fund? Well I would feel comfortable with about $5000 -I don’t have that much currently but am getting close. I think realistically if we had a real emergency - bankruptcy with the business - this wouldn’t even begin to cover my expenses with our large family but it would help and since I do not work outside the home living frugally is my way of contributing.
April 24th, 2009 at 5:04 am
Our emergency fund right now sits at $1,000. I have, like you, been thinking that it does not seem to be enough anymore. We have 3 kids and a dog. At any moment that amount could be wiped out. One bad vet visit alone could eat that and not to mention an emergency room visit with our health insurance.
It is something I would like to increase, but it will need to wait until the credit card debt is gone, then beef up the emergency a little bit, and then tackle the remaining car and student loans.
April 24th, 2009 at 6:49 am
My initial goal was $1000 the same as yourself it seemed to be the magic number out there. We reached that a while ago, but now that we will have a house and many more expenses we’ve set up an automatic withdrawal to an ING account that takes $15 a week. We won’t miss $15 a week and we have tons of debt to tackle so I’m not willing to put it any higher at the moment. So, it’s slow and steady for us. We should reach $1500 in May- It’s hard to balance debt vs. Emergency fund because realistically our EF wouldn’t even make our mortgage payments for 1 month!!
April 24th, 2009 at 7:46 am
I originally set my EF Goal at $10,000.00, but that was based off of monthly living expenses that no longer apply due to me getting married and renting out my place. I’ve decided to stay with that number even though it may be overkill. I am currently setting at $7,500.00 and my fiancee has another $2,500.00 so we are pretty much there…
The problem I have is that the lines between “savings” and “emergency fund” get blurred sometimes. I’m getting married in less than two months. We decided on a destination wedding and have managed to put something together that will be extremely nice, yet affordable. We plan on using some of the money in the EF to pay for the ceremony and our honeymoon. I hate that fact that we are spending some of our emergency fund on a non-emergency, but that is the only savings we have currently.
So our EF is about to take a major hit. I guess that’s better than being in debt though.
April 24th, 2009 at 8:54 am
I’m older, nearing retirement, and debt free - so my fund no longer exists as a separate entity. My retirement money is there if I need it for an emeergency - but I do keep about $3500 in a money market account easily accessible. As my monthly expenses are now about $400, I don’t feel the need to have a lot of cash around for emergency living expenses anymore.
I think the key to the emergency account is flexibility over time…. everyone’s needs will be different over time, so allow it to change as your needs do.
April 24th, 2009 at 9:02 am
I just reached the $1,000 mark in my emergency fund and I consider this to be my Phase 1 Emergency Fund (I chose to pay off my non-mortgage debt first and then save an EF and luckily it has worked out so far).
I am now working on my Phase 2 Emergency Fund which is to save $5,000 in a Tax Free Savings Account (max allowable per year in this savings tool introduced this year in Canada). I plan to max this out every year (fingers crossed) and will use this for an unemployment fund if it is needed or any major unexpected house repairs; otherwise, it will be additional savings for when I retire. Now I just need to stay employed and emergency free so I can grow these savings!
April 24th, 2009 at 9:13 am
Yes, these are familiar oscillations and setbacks. The only solution I’ve found is to try to take care of it all at once, like you’re doing, otherwise you’ll get behind on one and need to go overboard. Might as well pay off the student loan if you’re on the homestretch. Then at least you free up that $500/month for going towards your emergency fund in the future.
April 24th, 2009 at 9:14 am
My husband and I work at the same place and in a struggling industry, at that. So I guess we have a bigger fear of emergencies than most people. Our EF is about $25,000.
April 24th, 2009 at 1:11 pm
We’ve got about 9 months worth of expenses laddered in CDs. I work in the defense industry, so I’m always on the brink of downsizing if a contract gets canceled.
April 24th, 2009 at 1:24 pm
Right now, our EF is at 800.00; the goal is to make it to $2500. That should happen by the end of the summer. We also have several smaller ING subaccounts (Holiday, Vacation, Life Insurance, etc) that we could tap in case of a serious emergency—but I don’t count those as part of the EF (if I did, our number would be closer to $1500 right now).
I’d like to get the EF to $1000 with my next paycheck, and slam more intently on our CC debt, but am getting nervous about not having more saved. I’m in the midst of that whole quandry right now. I’d love to take the $850 we pay in CC/student loan debt and send it directly to savings—but I suppose patience is the key in paying off those debts.
Eventually, I will have our EF at a minimum of $10,000. Then we’d slam more on mortgage repayment and sending more each month to our long term savings.
April 24th, 2009 at 1:27 pm
Our EF is about $30K - we’re self-employed so it has been important to us (for peace of mind) to have an EF that could carry us through uncertain economic times, a change in our industry, etc.
Remember that the only reason Dave Ramsey recommends a $1000 starter EF is that his intention is for folks to climb out of debt quickly using a rice&beans approach. His method involves great sacrifice to ditch debt rapidly - if you’re not willing to go to that level of sacrifice (and let’s face it, not everybody is) then $1000 certainly isn’t enough of an EF to draw out over multiple years.
When we decided it was time to do away with debt and live differently so that we could start our business, all extras went out the window. We allowed ourselves $100/mo to eat out on (our one “frill”), no vacations, no cable, no new clothes, little-to-no gifts @ Christmas & birthdays, etc.
Rice and beans isn’t fun & it isn’t popular, but it does work. Thanks to Dave’s method, we are now on our way to paying our house off this year (we built it 4 years ago) - at 33 that feels amazing, but it is because we’ve chosen sacrifice over self-indulgence more times than I can count. As our income has increased over the last couple of years, we haven’t raised our standard-of-living and instead have paid extra on our house payment.
I would so encourage everybody to keep up the hard work of cutting back - save that EF & then pay down on debt aggressively! It’s so worth it!
April 24th, 2009 at 1:31 pm
I think kev’s nailed the problem on the head: EF vs Savings. We have plenty set aside for insurance issues (medical, car, pets) but I know that will ebb and flow as expenses come and go, and we get reimbursed. What we don’t have is specific $ to live on in that “worst case scenario”. It’d be ludicrous in our income bracket and with our expenses to even think of sequestering that kind of money without it also being purposed for something specific. I *think* we’d be OK for a while since I regularly fund for all billables (annual cost/26 pay periods). We’d just have to stop all “unnecessary” expenses.
Totally admire those who’ve been able to save up a true EF. Kudos.
April 24th, 2009 at 8:39 pm
We have conflicting priorities, too. We desperately need a larger vehicle, and the one car we have just broke (repair estimate: $600-$900).
Savings is our priority, because we don’t have much debt (just a Sallie Mae loan). But because we rent, and with all the foreclosures, I feel our emergency fund needs to cover the unthinkable - if our landlords get foreclosed on, we might have only a week to move! This means a first and last month’s rent (average), plus $500 or so for all of the misc. expenses (moving truck, utility moving fees, and so on). So I feel our emergency fund needs to be around $3000. (We also have lots of kids, and our hospital admit deductible is $1500, and that’s another reason why I don’t think $1000 emergency fund is enough for us.)
April 24th, 2009 at 9:57 pm
I get really scared when my emergency savings drop below $500. I try to have at least $1,000, preferably more.
After squirreling away enough to pay off a small second mortgage on my house, I was able to take that monthly set-aside and add it to the monthly emergency savings set-aside, for a total of $404 a month, plus net freelance income. As a result, the savings account now contains about $9,000. Of that, $2,425 is earmarked for COBRA, to carry me over from the time I’m laid off in December until I’m eligible for Medicare in May; and $1,200 is for the 90,000-mile service that will have to be done on my ten-year-old vehicle sometime in the next few months. So, right this minute, the REAL emergency fund comes to $5,789.41.
April 25th, 2009 at 7:33 am
Our EF is less emergency fund than a number in our checking account. I want there to be no less than 5k in there at all times. Once we got to a place where we could have the 5k, I changed it to 10k, which we reached this past week.
We were aggressively paying off our cards, too, and we finally paid those off as of Monday. It feels so good to get to a goal. Your system really works.
April 25th, 2009 at 9:21 pm
Our’s is at least $5,000 but when you live in a rural area and have a well and septic, etc., that amount could be wiped out in one emergency. I’m aiming for more - at least $10K. We do have $80 (soon to be $100) weekly deducted from my husband’s paycheck for another savings account (Christmas/vacation, etc.). We also live without much frills-pretty bare bones. We owe $80K on our house with at least $350K equity, no credit card debt, no home equity line. House should be paid off in less than 6 years. Set a goal, put it on the fridge if you have to and watch the numbers go down - it really does work and is great motivation : )
April 25th, 2009 at 10:10 pm
We have about $4000 right now in savings, which doubles as our EF. Nothing comes out of savings unless it’s an emergency (medical expenses, car issues, major computer problems, etc. - sometimes I try to convince my husband I need an emergency vacation, but I guess neither one of us is really buying that).
I have no idea what an ideal EF is. I hear $1000 from some people, but if you go with what Suze Orman says - an EF equivalent to 8 months of living expenses - ours should be closer to $16000 (and that’d be pushing it). We are just taking it one step at a time. We’re very close to paying off our cc debt and are chomping at the bit to get that done. But next up is about *gulp* $70K in student loans, and god knows how long it’ll take to pay THOSE off. If I could only have a talk with my younger self…
April 25th, 2009 at 10:21 pm
Interestingly, tonight on Suze Orman, she is now recommending funding the EF over paying off CC debt. This is because the CC companies are messing with people. The argument being that in “worse case scenario” in the past you could fall back on CC’s, but that is no longer the case: if you zero out a credit card the company may now reduce the credit line or outright close the account. ARGH.
April 26th, 2009 at 8:03 am
Our emergency fund currently stands at about $17,000, which amounts to almost 4 months of living expenses. We view our emergency fund as income replacement if we were both to lose our jobs. We are usually able to cover any “emergencies” that might come up come up with the “slush” in our checking/money market accounts. We usually keep around another $10,000 between these two accounts, which means we can weather another couple of months with no work.
We would like to get to a 6 month cushion in our emergency fund, and later a 1 year cushion. I recently wrote a post about how we plan to do that with a combination of increasing our savings combined with reducing our monthly obligations. http://www.dontfeedthealligators.com/blog/how-has-the-financial-crisis-changed-you
April 26th, 2009 at 1:12 pm
My goal is to get to $3,500 by the years end. As of next week, I’ll be at $2K which is good for me. Like others have said, I’d like to have a 3-6 month cushion in the account. I think I can do it as long as I don’t make those irrational decisions to make non emergencies, emergencies.
April 26th, 2009 at 1:14 pm
Most financial gurus recommend 3 to 6 months worth of living expenses. That number has been increased to at least 8 months by Orman due to the tight job market that exists right now.
When I was planning my EF, I took a hard look at what I consider “living expenses”. If I lost my job today I would go into extreme frugal hermit mode. No cable, no eating out, no movies, no extras period. It would be peanut better and jelly Monday - Friday and Ramen Noddles on the weekends. My student loans (the only non-mortgage debt I have left) would be put on hardship forbearance - I wouldn’t even attempt to pay them until I was back to work. The only “extras” I would keep would be a scaled back internet and cell phone plan for job searching. So, my EF amount covers necessities only. There would also be some unemployment benefits flowing in, but I never factored that money into the equation.
I think the point of the EF is just to give you some options and keep your butt in the game until you can get back on your feet. The reality is that I could take as much as a 50% pay cut right now and could still manage to tread water for a very long time thanks to the EF. I sleep a lot better at night knowing that…
April 26th, 2009 at 9:34 pm
For most people, I think $1k is a good beginning. However, consider this: in October, I nearly threw 95% of my cash savings (emergency fund, downpayment for a condo fund, etc) to eliminate my debt entirely. About two weeks later, I lost my primary client. If I had done that, I would’ve had less than two months living expenses, and I would’ve been broke before the end of last year. Now, six months later, I’m still largely unemployed and living off my EF (and I still have about four months left). I’ve been doing some small, low-paying projects here and there (though not getting paid for it, yet, but that’s something else), and I just landed a new client that appears to be able to keep me reasonably busy, albeit at a much lower rate than what I used to earn. Maybe next month I’ll earn enough to *not* tap my EF…
The upshot: fund your EF *FIRST*. Really. If you lose your job, you’ll thank me (and anyone else who tells you this). Thankfully, I have very low living expenses, and I’ve been able to super stretch my EF (I originally counted it as about 4-5 months, tops) by embracing a level of frugality that is new to me (and one that I hope never to have to embrace again). Given that I’m not married or involved with anyone, I’m the only person I have to rely on financially. If you’re still working now, I envy you and advise you to build up a nest egg of at least 2-3 months expenses, before tackling the debt. Doing this saved my a$$, and has kept me from sleeping on my mother’s couch.
April 27th, 2009 at 9:07 am
My partner and I try to keep the EF at $2,500 as well. Since we own a home and have pets, there are about a million things that could go wrong! And like clockwork, about every 6 months something unexpected comes up to the tune of $500-$1,500. Ideally, our EF would be about $10-15k to create a cushion in case of job loss or a very major home repair (like furnace or roof replacement). We’re working on it, but that’s not likely to happen anytime soon.
April 27th, 2009 at 11:18 am
A couple thousand in an EF seems very, very low, especially given the economic climate. My goal is $24,000 (8 months worth of living expenses) and i have about $10K in it now.
April 29th, 2009 at 10:15 am
I had $1000 when I was aggressively paying down debt because I was secure in all other aspects (no real fixed bills, no car, secure job with good salary)
My EF now is $24,000 @ $2000/12 months.
If I can really live off $1000/month (Am testing it for the month of May), then I actually have 2 years saved. Even better.
I also have regular savings. Another $13k there.
FB @ FabulouslyBroke.com
May 3rd, 2009 at 11:42 pm
I currently have $75,000 in EF. I know that’s a lot of cash to have in the bank but thats what makes me feel very safe. I do have other investments and have also maxed out my retirement funds (401K, non-deductible IRA), and no debt other than my mortgage, which i’m paying down aggressively. Even though my profession is highly paid, I live well below my means. I’m always amazed how people spend money on trivial and unecessary things!
May 6th, 2009 at 5:32 pm
Somebody above wrote “Might as well pay off the student loan if you’re on the homestretch. Then at least you free up that $500/month for going towards your emergency fund in the future.” I really disagree. That works only if the emergencies are all very cooperative and agree to wait until your student loan is paid off. You already know that isn’t the case. If your DH were to (heaven forbid) get injured or lose his job, then where are you going to get the money to eat? Are you assuming you can borrow it? Not guaranteed these days.
Another reader above pointed out that Dave Ramsey’s system is designed to make you scared to death so you’ll pay off the debt as fast as possible. And maybe that’s what you need to motivate you….but just know that you are taking risks. When that car dies, you’ll be scrambling (or borrowing!)
Personally, I’ve chosen to 1.) keep a short-term emergency fund of at least $5000, then 2.) live cheap to pay current expenses, including college tuition, then 3.) save as quickly as possible for a replacement for the 13 year old car, and then 4.) pay off the previous student loans as quickly as 1-3 will allow. Yes, I want out of debt, but most of all..the basic principle driving us is to NEVER BORROW MONEY AGAIN. Paying off old debt and then borrowing again is a no-win situation.
Good luck to you on your path.