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Your Take: How Is Your Emergency Fund?
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20% of Americans “suffered a significant economic loss” last year, according to a report two weeks ago, the highest level in the last 25 years. The Economic Security Index has been tracking data on income loss, medical expenses, and debt since 1985 and it has shown economic insecurity has risen across all groups. What’s economic insecurity? When they’ve lost 25% or more of their available gross income within a year and not enough of an emergency fund or reserves to make up the difference.
Here’s the shocker (at least to me) – “48% of Americans said last year they only had enough resources to carry them for two months before experiencing any economic hardship.”
That’s scary. I’m curious to know how many months you have saved up in your emergency fund as well as how that level has changed in the last two years. We used to have an emergency fund of only around six months until two years ago, when I left my job to pursue blogging full-time. Back then, we decided to up the level to around twelve months of expenses in order to handle the fluctuations in income. It’s maintained that level ever since, in a CD ladders, and I haven’t increased, or decreased it, during the recession. I consider myself lucky, a lot of folks have had to dip into that fund.
How about you?
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We have 3 months, maybe four, but we’re trying to pay off high interest debt before we build the emergency fund any larger. IMO, the point of an emergency fund honestly is to avoid borrowing money at a high interest rate in the case of an emergency. If you already are paying high interest on some debt, you might as well pay that off first. Our high interest debt is only 8.625%, so we have more than a month or two of an emergency fund, but we still consider that a high priority to pay it off.
I think a strategy of tackling debt after you have a bit of an emergency fund is smart, good luck to you!
Thanks, Jim. The bad news is this debt is $27K on a second mortgage for a house we shouldn’t have bought four years ago, so it’s gonna take awhile to pay off. However, we’ve since revamped our financial behaviors, built that emergency fund, paid off over $25K in other consumser debt, started our IRA’s last year, and reduced this mortgage down from $40K, all over the course of the last 2-3 years. We should have this mortgage paid off in another two years. Definitely looking forward to that!
I have been there myself, so I have a fair idea what you are going through.
Sounds like a smart strategy.
Good luck!
Bill Snider
I’m conflicted about how much to put in an emergency fund. I realize no job is secure, but I have relatively good confidence in the longevity of my employment. Also, in this economy, I have little confidence that – should I lose my job – I’d have luck in replacing it with something comparable in short order.
Case in point, when at my last job, I started looking immediately to move on and it took me the better part of three years.
So is an emergency fund what I need here? Or do I need an exit strategy?
Keeping three years of an emergency fund around is possible, but that’s a lot of liquid assets. And a lot of money to burn through while searching. Perhaps I’d be better off having a plan to leave my high cost of living area, moving in with a family member, etc.
I’m not so much looking for an answer as presenting an issue. With unemployment in my state at 14% and my vocation field narrow, I might be better off packing up and heading out to a flyover state and taking any job at half the pay.
Unfortunately the issue is much more complicated in the present economy.
Leigh,
I was thinking something very similar this morning when listening to the NPR program on the low unemployment rate in Nebraska.
(http://www.npr.org/templates/story/story.php?storyId=129016793&ft=1&f=1003)
Although I’ve never thought about moving to the mid-west the story peaked my interest. The mid-west’s lower unemployment rates may signal that it can be a good strategy to look for jobs in the “fly over states” for new grads and some families willing to try out a new location.
I happen to live in a flyover state (Iowa). It’s true that there isn’t always the diverse set of experiences you might get in a big coastal city, but on the flip side, there’s less BS to deal with.
I live 30 miles from my office. Know how long it takes me to get to work (if I don’t have to drop the kids off at day care)? Yeah, 30 minutes. A “major traffic jam” might delay me twenty minutes (and occur once every three months). Crime rates are low (to the point of being nonexistent in some more sparesely populated areas).
Salaries are lower, but so is the cost of living. There also tends to be more stability. You’re not going to see real estate prices double in a few years, but neither is there a massive bubble that will cost you a small fortune. My house is actually worth more than what I paid for it 5 years ago.
It’s not for everyone, but there are definitely advantages. For me, it works.
My emergency fund is at 3 months, which is half of where I want it to be. However, it was didn’t exist 8 months ago, so I’m pretty happy with myself.
That sounds pretty impressive to me. Keep up the good work.
Yes,me too. It took me forever to get 3 months together and not touch it. Feels good though.
We now have 30 months living expenses in our emergency fund. The downturn of the economy in the last 2 years spurred us on to add to it as often as was reasonably comfortable.
As retired seniors on Medicare health insurance, a catastrophic illness could financially break us. Should it happen, we need to be prepared.
Mine is seriously lacking if you don’t count retirement (which I don’t). I only have about $1k saved up while I pay through debt. But once the debt is up, I’ll likely do 12 months too because I’m a “backup plan” type person and would go too OCD without it.
Hi Crystal, I’m in the same boat. My husband and I started with the Dave Ramsey program and saved up my 1K while we paid off debt a couple of years ago but then we started getting miserable from cutting back so much. Needless to say, we spent that 1K and got in more debt, most of it was good debt b/c we bought 2 rental properties that are generating income but last week I didn’t receive my check from my job and we got the revelation that we really need to build an emergency fund. So we have about 1K saved up so far and are planning on getting to 3 months worth of expenses by the end of the month then we’ll get back to our debt.
I have 10 mo roughly for pure emergency funds then I have 2 additional CDs that I have yet to decide if I will close and apply to student loans or remain in the emergency funds when they come to maturity later in the year. Currently I’m leaning toward loans as the interest is higher than any offset from CD interest, but I am due to some inheritance from my grandmother who passed last year that has yet to be calculated and disbursed and situations may change.
If an emergency happens and if I keep all of my expenses the same, then I have only about 2 months saved up. Note that I am in the middle of building my e-fund. Hopefully, by the end of 2010, I will be at 3-4 months. At the end of 2011, I will be at 6-9 months.
That being said, if an emergency happens, I would like cut all unneccesary expenses (cut cable/Internet, cut gym membership, ask for forebearance on loans, etc.). This would stretch my current savings to about 4 months.
My emergency fund is slowly growing. I’m working towards 12 months but I’ve only got about 4 months saved up at this point.
I don’t really think of our EF in “months” yet, per se. We are a two income household, and can meet all our basic expenses with a bit left over on the smaller of our two incomes. That said, we have a little over $5K spread out in a 6-month CD ladder, plus no-penalty CDs for our auto and medical insurance deductibles and about $1000 in a savings account for minor things. We are working on getting each of the 6-month CDs up to equal our basic monthly expenses (about 25% of the way there so far) so that we are covered if we both happen to lose our jobs – unlikely, but possible.
2 years ago the smaller of our two incomes had a $500 monthly shortfall, so that’s what we decided to open the CDs with so we’d be covered there.
Id’ like to see people post what they consider to be “a month’s worth of expenses” and also how that changes their view of their e-fund.
For example, I have 5 months worth of my budget (excluding savings) in my e-fund. That means that if I were to lose all of my income, I could behave as if I hadn’t (except I wouldn’t be saving anything) for 5 months. This includes meals out, and my usual vices and indulgences.
But if I were on a strict budget, i could conceivably make it last a good 9-10 months.
So how many months is your e-fund, really?
I’ve socked away 12-15 months in a savings account and keep a couple months living expenses in checking. That’s all I’ve managed so far after getting out of debt last year. I was unemployed for over a year before finding my current job, so I assume that I may take just as long or longer to replace it. Since I need a car, I still want another $5k to $10 set aside so that I’m able to purchase a replacement with cash.
48% isn’t shocking to me at all when I think of all my friends that have so much debt their minimum payments amount to a second mortgage (it would take thousands of dollars a month for 20-30 years to pay off). This signals to me that many people 1) can’t put invest in themselves because all of their income is owed to someone else and 2) they’re not really thinking of the broader picture regarding their financial situation.
I don’t have a formula for our emergency fund but we’ve diversified (so to speak):
1) We make extra payments on the mortgage. For every 8 months of mortgage we pay, we gain an extra 2 months .
2) We keep at least $2k in our checking so we don’t have to use a credit card for an emergency
3) We use BofA’s ’round-up’ plan to add to booster our savings/emergency fund. If I spend $3.50 with my debit card, BofA “rounds up” the transaction, sending the extra 50 cents to my savings account (which now has 3 months of expenses).
Our plan is to keep growing our funds and stay out of debt, otherwise.
I have a family of four and I am sole bread winner. I/We have 12+ months in a savings account for emergency fund, plus $1,000 available in checking for emergency needs. I have not used a credit card in 10 years. My only payment is home mortgage, and we have paid off 2 vehicles,etc. I have been very lean on my investments in the past 10 years too. I have errored on side of larger savings and paying off all debt first. Thanks to Dave Ramsey’s Financial Peace University. Check it out and paying down all your debt snowballs first! God bless.
We currently have enough cash to last us 2 years at current spending levels. But we could stretch it further if we cut back our spending.
We have enough money to last us for up to a year. I feel fortunate that we have not had to access that money even during the recession. The only concern I have is that it’s more of savings than an emergency fund. I do also have money in a Roth IRA that is separate from my 401K that I could use as well. I really need to sit money aside that should only be touched in case of an emergency.
That’s a good question, as I hadn’t thought about it. If we had absolutely nothing coming in, and costs remained as they were last month, we could continue for nearly two years. However, we spent a lot last month, and it was discretionary spending. I consider it an economic hardship if I can’t save at least 30% of our income. The last two years have been a period of saving more. We are generally out of sync with the general economy as far as our own economy, and I hope to keep it that way.
I was shocked to see that for July, we spent more than came in. This hasn’t happened in many years. However, I pre-ordered the Kindle and counted it as a July expense, even though Amazon has not taken the money. I overspent our income by less than $30 – but to me, that is disturbing. Maybe it won’t be when I receive the Kindle
Right now I’ve got about 12 months, but if I go back to school that will get drastically reduced
A few months ago I had about 4-5 months saved up, but now that my partner and I have both finished our graduate programs and are looking for work, we are down to 2 more months left in our e-fund. We were living at grad student limits already ($1800/ mo.), so there’s really nothing to shave off in terms of unnecessary expenses. We are both desperately applying to all the jobs we can find right now. It’s just a bad time to be done with school and unemployed.
Last year my husband switched careers and had a rough transition from the military to civilian life. This year we became foster parents- the two events have wiped out what was once a 6 month emergency fund. We now have about $300.00 left. I thank God that we had it when we needed it and can’t wait to rebuild.
I have 8 months.
I have 3 months in an emergency fund and another 5 in a fund dedicated to purchasing our next used car. I think I want a year e-fund + our replacement car fund to be able to replace both our cars. But I also want to live a little now. We just have our mortgage and student loans ($150/month) locked in at 0.65% less than 1% so I think we can pace ourselves now.
I find it hard to believe that only 20% of people experienced an economic hardship during the past few years. We live in the Detroit area and every other person we know is struggling. It seems as though most of your readers are fairly young. My husband and I are in our early 60′s and had 1 1/2 years of EF three years ago. That has dwindled to about 10 months because we needed to use it. Although my husband is still employed, we have lost 2/3 value in our home, and 30% of our IRA’s. These are very tough times and a year’s worth of EF would be my goal.
What is an emergency fund? I only have 1 month in a dedicated account for emergencies, but have about 5 months in all liquid account and if I count actual cash needs after collecting unemployment, we have about 8 months and that’s assuming that both my husband and I lose our jobs and only I’m collecting unemployment (his may or may not give it to him). Do you think that’s sufficient for a dual income family with no children?
9 mos at current expenses, 12 mos at “tighten the belt” expenses and several years worth if I include the after-penalty-tax value of our retirement funds.
In my profession, finding a replacement job can take a while. Last time I was looking for a job it took me 3 mos, and that was when everyone was hiring like crazy. Hence, the bigger buffer.
I pretty much have no emergency fund which terrifies me. A lot of money goes towards bills and trying to get my credit cards paid off. Fortunately, I don’t have a lot credit card debt. I realize too that I need to be more mindful of my spending habits.
I have about 6 months emergency fund that is slowly growing. My goal is to have at least a year’s worth incase anything happens with my current job.
I am very grateful to you PF bloggers, because two years ago, an EF wasn’t even in my vocabulary! Now we have about one year of living expenses, which is a good thing, since my husband lost his job earlier this year. The EF is the only reason I can sleep at night!
My wife and I decided we needed to have an EF that would at least cover all our expenses for a full year before I quit the corporate world and started working for myself.
That was 2 years ago, and luckily we’ve managed to not touch it at all.
I have about #300 in the bank and about $800 in credit card debt (on a $1100 limit). I pretty much live every day of my life terrified that I’ll mis-calculate my budget, buy something I shouldn’t, and have no way to pay my rent at the end of the month. I’m trying to save the best I can (clip coupons, shop sales…heck, I even have some bills in different currencies when the exchange rate is in my favor!). Sometimes the best way to save for an e-fund is to increase your income. I think that’s what I’ve got to do. It can be a catch-22 since without an e-fund it’s hard to be flexible and find a new career!
At least you have a plan…that’s half the battle.
Currently about 2 years worth in savings bonds, but it is also doubling as the kid’s college fund. They are not the best investment. However, it’s the only thing that I tried that I haven’t been tempted to cash for other purposes.
I’m super risk averse, so we also do the following:
-Dual income that could live on one income if needed.
-Reducing our fixed expenses by working to pay off the mortgage early. (if we pay off mortgage debt, suddenly that 2 year e-fund turns to 3 years)
We are retired, wife and I, and have been since June/July 2003. We have managed for these years on retirement funds from wife school teaching fund and I from social security. 2008 in the fall when everything to a dive I quit drawing on my IRA. We now have no EF to fall back on. I work part time to supplement pocket money and some traveling. But this past spring my pocket money is disappearing. Next year will most likely not be traveling. Worked for all those years for what I wanted to do now will have to try and find work to support daily living. Now at 66 years of age don’t know what I will find for work.
I have 10 months ($20K)in my online high yield account. I’m shooting for 12 months in EF = $24K…after that I will be able to sleep well.
Monthly expenses: ~1800 rent + utils
~110 cell phone
~60 DSL + home phone
~1000 food
~100-200 gas for cars
——-
~3150 / month in expenses
Cash/brokerage acct: ~3 years (not counting unemployment checks that and minor cut backs in spending which should take us out to 5 years+)
Retirement accts: 4 more years or so.
Current rate of growth of savings is about 2-3 months of savings for each month worked so I think we’re in a good position
We had only 2 months and we both lost our jobs. Unemployment income wasn’t enough and we slowly but surely faced financial ruin. We’re now in the middle of a bankruptcy. I wish we never got trapped in the credit card debt cycle because paying on those debts took away from our ability to save for emergencies. Getting into credit card debt was incredibly dumb on our part but not having savings was also equally short sighted. We’re now saving towards an emergency fund and are trying to do an about face on our finances.
We keep six months in a MMF, but continue to add to it monthly. Every now and then, if we don’t need to tap it and the balance grows to 8 months, we pour the extra into an S&P index taxable fund.
Fingers crossed, G-d willing and the creek don’t rise, the “backup” EF index fund will convert to our “Early Retirement” fund.
Ours is 6 months. But it was in danger of getting depleted 2 months ago when my husband had surgery for pacemaker implantation, which was not covered by our insurance. It was great that he had friends who helped us with the expenses.
I have 8 months in my Emergency fund, a decrease from 11 months from the beginning of 2010 as I used the difference to pay off a car loan in 17 months vs the 60 month term.
My plan is to have 12 months by Jan 2011 and 18 months by Jan 2012.
This is based on my actual must have monthly expenses, rent, auto insurance, groceries, utilities (no cable TV but internet ),etc. No padding or frills included.
About a year’s worth of living expenses in the bank. Like Darwin Benedict, I also learned that I could not draw from retirement funds after the crash — luckily, I had not quit my job, as I imagined I could at the height of the illusory boom. Now laid off into forced “retirement,” I’m managing to delay drawdowns by cobbling together a living from part-time employment and freelance gigs; so far have not had to eat into the EF. Yet.
I have 9 months of current expenses in the bank. If one or both of us get laid off, I have no doubt we could stretch to 12 or 15 months.
We have about 4 months on our comfortable budget, but mostly because my wife’s on unpaid maternity leave. We plan on growing that back up to about 6 months, but with unemployment if that became necessary, it’d last probably a year.
We have enough for 7-8 months worth of living at our current level. If my husband or I were to lose our job, we would probably try to cut spending right away and could probably stretch the fund another 2 months or so.
As Charlie mentioned above, I think each individual’s definition of an emergency fund differs. There is the current expenses versus belt-tightened expenses, plus in the case of couples where both are working, do you count your time frame assuming that both lose their jobs, or do you calculate assuming that the lesser income is kept, because it is unlikely that both would lose their jobs at the same time?
In our case, if you assume that we both lost our jobs, I think we could only last about 3 months at current spending levels, but if we “tightened our belts”, we could probably not even touch the EF by living on the lesser of our two incomes. Since it is extraordinarily unlikely that we would both lose our jobs, I think that is a fair calculation. BUT, I do still intend to keep growing our EF anyway… just in case.
We have 6 months of a normal budget saved. If we cut back it’d be more like 8 months.
Over the last two years, the amount in my emergency fund hasn’t changed, though I now label $X emergency and $Y home downpayment. The home downpayment number has grown.
I don’t have an emergency fund because I need to pay off 4k of credit card debt
Credit Cards are the Debil…
I think that everybody should put at least something away each week. Even if its only $25. If you put 25 bucks away for a whole year $25*52=$1,300. It’s not a bad start. Try to be creative.I bring back my bottles and sometimes get a dollar. I have also tried to save my change and dollar bills. make your own coffee. You could also try and go on a spending freeze, stay away from the stores, make your own lunch. Definetely make paying off your debt a priority. But find $25.00 somewhere per week and put it in a safe place. It will take time, but give yourself some piece of mind.
Have a plan and work at it bit by bit. You will succeed.
Good luck to you
Here’s where we cut back. Costco brand coffee says it is roasted by Starbucks & tastes great in a Bunn coffee maker. Coffee costs around $.50-75 per pot or $5 / lb.
Eating out less for dinner. Service isn’t what it used to be and the steaks I grill taste better and you can “afford” a steak for the price of a #5 hamburger combo…
Buy less clothes by taking care of the ones we have; don’t buy designer (much)…
We’re out of debt now, but the lifestyle remains and is well worth it.
I found this interesting from The Cheapskate Next Door about emergency funds: While they have savings in the bank, less than 15% have a formal “emergency fund” (“an emergency fund is for people who don’t have their financial house in order otherwise,” another cheapskate said).
I think I believe the opposite, having an emergency fund IS having your financial house in order.
~3-4 months i believe. wish it was more but it is what it is and recently i havent been as focused on saving. ill get back into it. it ebbs and flows
We have a couple things. If my wife loses her job, we have an executive savings account that will pay out about $2,500 monthly for 5 years when her employment is terminated or she quits.
If I lose my job, she makes plenty for the 2 of us, but we also have multiple CD’s that would take care of us for at least 5 years. Just have to pay the 6 month interest penalty for withdrawal.
If we both lost our jobs, we’re going south to Mexico or Dominican Republic to live while the world gets fixed (if that’s possible). We are gringos looking for an experience and know folks who have been down there for some time and speak highly of the quality of life for the budget minded.
I recommend at least 6 months, if not 12 months to anyone I speak to…
We have $18,250 in an “Emergency Fund” and that would give us 6 months with bare expenses and NO additional income, stretching to about 10 months depending on what else was coming in. However, I also count this as money available for our insurance deductibles (about $6,000) so in reality it’s about $12k for “emergencies” or “job loss”. We also have other accounts for paying for school (We’re both grad students as of this fall), paying off my student loan (while deferred, let it earn money – also serves as a backup EF), and small accounts (Right now) for car, house, travel, misc expenses.
My goal is to hit $20k until we’re out of grad school and reassess when we both (hopefully) have jobs.
My emergency is now at around $5,300.00 and my credit card debt is $77.00; I only have a $800 line of credit but I found even paying $600 back painful. I now get it that the purpose of a credit card is to build up my credit score not to spend it all because it is there. I will continue to get it to a $0.00 balance and then I plan on using no more than 10% of it. Instead, I am working on getting a little fund which I call “nice things for me fund” and another one for other little emergencies like doctor, dentist. I don’t want to borrow from the future anymore. I pretty much skrimped and saved to build my emergency fund any last week I let go and eat out went skiing and let go of my money easy. Why is it so difficult to stay motivated to save and why is it so easy to spend. I hate self control but I know that it is necessary to get ahead.