In my post about how all funds are emergency funds, one of the commenters pointed out that $1000 isn’t really some magic number for what an emergency fund should be, in fact it was just a number that was easy to remember, and may not be sufficient for many emergencies that the average person or family may face.
I do agree, and I replied to her comment, but I realized I have a lot to say about the importance of the $1000 emergency fund as a starting point. The $1000 emergency fund as psychological hack was what got me to finally save an emergency fund, and so I thought I would write my full response in a more formalized way.
When you haven’t ever saved anything without a specific purpose pre-assigned to it for spending, or even haven’t ever saved anything at all, the conventional wisdom of a 3-6 month emergency fund may seem so daunting and overwhelming that you never start doing it. To many people, even $1000 is a whole lot of money to have saved. I know it was to me. So even though I wanted to save a 6 month emergency fund, it was out there in my mind in the pile of “things I wish I could do but I don’t think I ever can”. The idea of the $1000 emergency fund was still pretty overwhelming, but it was small enough that I could at least attempt it. The idea, when I first started saving, that I could save 6 months of expenses seemed so far out of reach as to be impossible.
Yes, all it takes is actually trying, but if things seem impossible, it is hard to take that step to try. The idea of the $1000 emergency fund makes saving an emergency fund seem possible to a much broader range of people. In my world, $1000 is a whole lot of money, more than a mortgage payment, more than any single bill we owe, even more than all of our monthly non-mortgage debt minimum payments combined. This is not to say that $1000 is a sufficient end-all-and-be-all emergency fund for us. But making $1000 our goal made the idea of an emergency fund actually become a reality.
Now, at the point I am at now – do I think a $1000 emergency fund is ultimately sufficient? No, I do not. Even if I did, the $3600 car repair should have taught me I was incorrect. But still, we generally have the $1000 emergency fund as our emergency resource. Why? Because what keeps me up at night, still to this day, is the never-ending monthly obligations of our debtload, and how close to our minimum income our minimum expenses are. There’s not a very wide gap between what the minimum we bring in per month (which is my spouse’s salary) and what needs to go our every month to meet our minimum expenses. Yes, we bring in more than that per month due to my efforts, but all of my work, at its heart, is contract work and not guaranteed to continue past today (illustrated by the abrupt loss of my primary contracting position last October). Although many of my projects show no signs of ending, with the economy as it is, one never knows when a program will be cut or a position will end. Although the same could be said for my spouse’s employment of course, the company he works for, even in these economic times, has been rapidly growing every year, and shows no signs of slowing.
So for us, right now, we tip our balance of savings and debt repayment much more heavily to the debt repayment end, which means the minimum $1000 emergency fund. This won’t stay this way forever, and the more debt we repay, the closer we are to getting a good night’s sleep. And the more soundly we sleep, the more the emergency fund will become a priority. But until then, that arbitrary $1000 number works for us. Although I look forward to a time that both my lack of debt and healthy emergency fund of 6 months expenses plus foreseen replacements lets me sleep even better than a baby.