Author Topic: LearnVest's Recommended Emergency Fund: 6 Months Take Home Pay?  (Read 1576 times)

jtwriter

  • 5 O'Clock Shadow
  • *
  • Posts: 18
LearnVest's Recommended Emergency Fund: 6 Months Take Home Pay?
« on: December 22, 2017, 11:03:24 AM »
After hearing about LearnVest via NPR's How I Built This podcast, I wanted to see what it's all about. Basically, they provide cheaper/more accessible financial planning services, which seemed interesting. On their site they provide this sample plan: https://www.learnvest.com/wp-content/uploads/2016/12/LearnVest-Financial-Plan-Sample-Only.pdf.

One thing that jumped out at me is their emergency fund recommendation: they suggest the sample customer save 6 months of his take home pay instead of ~6 months of expenses, which I see recommended more often. This puts his target emergency fund at ~$29k, which seems an excessive amount of readily available cash, given his "fixed expenses" for 6 months are less than $17k. If you add in 6 months of what they term "flex spending" (for some reason they include groceries in this category, which seems more like a fixed/necessary expense, but nvm that), it comes to ~$25k.

To me, take home pay is a poor/irrelevant metric to base an emergency fund on. 6 months (12 maybe, on the high end) of however much cash you need to survive and meet payments/obligations seems more sensible. Especially in a dual-income HH. (I also know some of you rely on a HELOC as an emergency fund. Not a home owner, so haven't looked into the finer points of this.)

Do we chalk this strange recommendation up to the typical shortcomings of conventional financial advice, or am I missing something?

Maenad

  • Pencil Stache
  • ****
  • Posts: 643
  • Location: Minneapolis 'burbs
Re: LearnVest's Recommended Emergency Fund: 6 Months Take Home Pay?
« Reply #1 on: December 22, 2017, 11:35:47 AM »
I think it's more that they understand that most people don't know what their monthly expenses really are, but they do know the value of their paychecks coming in.

slappy

  • Handlebar Stache
  • *****
  • Posts: 1456
Re: LearnVest's Recommended Emergency Fund: 6 Months Take Home Pay?
« Reply #2 on: December 22, 2017, 11:53:36 AM »
Also, a lot of people's expenses=take home pay.

jtwriter

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: LearnVest's Recommended Emergency Fund: 6 Months Take Home Pay?
« Reply #3 on: December 22, 2017, 12:03:08 PM »
I think it's more that they understand that most people don't know what their monthly expenses really are, but they do know the value of their paychecks coming in.

Yeah, it's just odd in this case because they've already worked out the customer's expenses. It's like the first thing in the plan. So why not base of of this number instead of pay.