Author Topic: How much emergency fund should I keep in the bank?  (Read 2169 times)

All That Glitters

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How much emergency fund should I keep in the bank?
« on: July 06, 2016, 11:29:48 AM »
What's the mustachian philosophy on emergency fund to have available in the bank while paying off debt (not investing yet). 2 months living expenses? 3 months? Any perspective is much appreciated...

lbmustache

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Re: How much emergency fund should I keep in the bank?
« Reply #1 on: July 06, 2016, 11:40:35 AM »
People will give you different answers; I would personally look at:

Debt amount
Interest rate
Likelihood of major problem occurring (losing job suddenly, medical expenses, etc.)

If you have a high interest rate and a relatively low likelihood of a major problem occurring, I would pay the debt off first. If a major problem happens, you can just put it on a credit card and start the process over again.

I'm young and healthy, but work in an unstable field, so I like to a keep a minimum of 4 months living expenses in cash, ideally 6.

v8rx7guy

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Re: How much emergency fund should I keep in the bank?
« Reply #2 on: July 06, 2016, 11:41:44 AM »
Three months emergency fund feels just about right for our family.  But, as mentioned, it depends on a lot of factors.

Shor

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Re: How much emergency fund should I keep in the bank?
« Reply #3 on: July 06, 2016, 11:48:47 AM »
What's the mustachian philosophy on emergency fund to have available in the bank while paying off debt (not investing yet). 2 months living expenses? 3 months? Any perspective is much appreciated...
This really depends on your comfort requirements and your income stability.
Some people stick with 6 months living expenses, the general consideration is that if the income stops flowing, you can find a new job within those 6 months, and not have a hiccup in cashflow.
Others require the account to have a buffer in case of large unexpected expenses come up that require immediate attention: home repair, car repair, emergency familial mortgage payment (sigh). Some of these can't be pushed off on to a CC depending on the situation.

The general idea of the Emergency Fund concept stems from a paycheck to paycheck household situation where a large expense can't  be handled well and goes right on to the rolling CC debt (gulp!) as a last resort. If you have your clams all lined up, you don't need to have a large lump of cash sitting around.
Generally, with stable income, you can simply cash flow most expenses on a credit card and pay it off before interest kicks in, others use a HELOC and spread out the repayment as needed. If you have a credit buffer, the need for actual emergency fund money has a bit more wiggle room. So really it depends on what type of emergency you want to be prepared for, and what your plan of action is for drawing from your resources when you need to.

For my own case, I have a small cash buffer account,
with a large CC pool for immediate expenses,
and a taxable investment account for a long slow draw down in case of "forced retirement".

GuitarStv

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Re: How much emergency fund should I keep in the bank?
« Reply #4 on: July 06, 2016, 11:57:42 AM »
Kinda a tricky question to answer since having debt is an emergency!

notactiveanymore

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Re: How much emergency fund should I keep in the bank?
« Reply #5 on: July 06, 2016, 12:07:35 PM »
While paying off debt, we started with $3000 in the emergency fund. Then we took $1000 from it for an unexpected car repair and didn't replenish it. We're using another $900 from it this week to finish the debt off completely. So we started at $3000 and we will end with $1100 in e-fund and $1800 in car savings. We could probably get our absolute bare-bones, non-debt expenses down to $1500 on if we both lost our jobs.

We considered many things to figure out where we felt comfortable:

- we each make similar amounts and could cover all our expenses on either salary
- we have awesome health insurance. no premiums and a $1200 family deductible with $2000 OOP max
- we have comprehensive car insurance with $500 deductibles on each of our two cars
- we rent and we have renter's insurance
- we have no children or pets
- while paying off debt, we have been putting $2500-2700 towards it each month when the minimum payment was $500, so we could divert our cashflow by $2000 each month
- technically we were "paying ahead" on the student loans, so we actually could have diverted the entire $2700 amount to an emergency
- one car is in great shape and only 6 years old. the other car is older and we put $100/month away for a replacement
- all our debt was federal student loans, so we had a lot of hardship/deferment options

If I had a house, kids, medical issues or a HDHP, or was in a single income situation, I'd probably keep at least 3 months in there. How much you can divert in your cashflow while paying off debt is a huge deal for me.

All That Glitters

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Re: How much emergency fund should I keep in the bank?
« Reply #6 on: July 06, 2016, 06:54:58 PM »
THANK YOU for these inspiring replies. I really appreciate the logic based on different situations. Since I have multiple streams of income and live simply with no dependents, it makes sense that I wouldn't need as much "emergency" money socked away. If one part of my income falls flat, I'll still have other streams. I like the idea of a 3-month buffer a lot. I'm embarrassed to say that I have rarely had that in my life (and not for lack of income - for lack of sane saving/spending habits).

Kinda a tricky question to answer since having debt is an emergency!

EXACTLY! I had no idea every last bit of my body hair was on fire all these years. I can't wait to up my student loan payments.


- while paying off debt, we have been putting $2500-2700 towards it each month when the minimum payment was $500, so we could divert our cashflow by $2000 each month

Rad.

MoonShadow

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Re: How much emergency fund should I keep in the bank?
« Reply #7 on: July 06, 2016, 07:03:59 PM »
Holding (unsecured) credit debt IS a fiscal emergency, so my opinion is that you shouldn't worry about an emergency fund until you snowball the credit debts.  Two  weeks expenses at the high end, just to make you feel better.

All That Glitters

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Re: How much emergency fund should I keep in the bank?
« Reply #8 on: July 06, 2016, 07:09:07 PM »
Holding (unsecured) credit debt IS a fiscal emergency, so my opinion is that you shouldn't worry about an emergency fund until you snowball the credit debts.  Two  weeks expenses at the high end, just to make you feel better.

Yo you are bold MoonShadow. Technically it's student loan debt. No credit card debt. But I like your style and believe I will survive either way.