Comments on: Remember to Adjust Your Emergency Fund Limits

By: adfecto

adfecto — Wed, 13 Feb 2008 21:28:11 +0000

That sounds like an engineer talking: mishap severity and probability of occurrence. That’s exactly how you analyze risk whether it is for a rocket or a job loss. Great post.

It frustrates me how it is so often easier said than done when it comes to turning around your finances. Growing the account balance quickly enough to react to the changing environment is tough. Today it might be twice as likely that a person gets laid off than 2 months ago (thus I know I need more money), but doubling the emergency fund to react to the changing probability is not a trivial thing. Putting back $100 a month (my current emergency fund contribution) isn’t going to bring my mitigation into line with the risk for several years (by which time the risk has decreased).

I look forward to the day that I have 2-3 times my salary in a taxable brokerage account and increased risk simply means moving a little more into a money market fund rather than stocks. Normally it would be equal to 6 months salary, but in turbulent times a click of the mouse could double or triple the safety net. In the meantime, Plan A is a couple thousand in a high yield savings and credit cards are still my Plan B.

By: Chief Family Officer

Chief Family Officer — Tue, 12 Feb 2008 03:07:02 +0000

A useful guideline for me has been reassessing my emergency fund limits when we have a major life change, such as a job change or the birth(s) of our children. I’m currently of the “everything in cash” school, so it’s been a simple matter of increasing the amount in the account designated as the emergency fund. However, I’m thinking of moving some or even most of the funds into a money market fund, which has a little more risk but certainly not a lot. I need to understand more of the tax implications, though, since I’d be moving to a tax-exempt MMF.

By: jim

jim — Mon, 11 Feb 2008 20:28:55 +0000

Carol: Thanks, I had spelled it ‘crises’ at first but the Firefox Dictionary told me it was misspelled, thanks for the correction.

By: Frugal Dad

Frugal Dad — Mon, 11 Feb 2008 19:47:04 +0000

Our emergency fund has fluctuated some over the years, based largely on the factors you describe. When things tend to head south in the economy, or in my line of work specifically, I tend to sock away more. As things ease up I may use some of that fund to do some “outside-retirement-accounts” investing.

By: Carol

Carol — Mon, 11 Feb 2008 18:50:08 +0000

Beware nit-picking in this post.

crisis’s -> crises. You’re looking for plural (one crisis, two crises), not possessive (the start of a crisis = a crisis’s start).