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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?

{ 60 comments, please add your thoughts now! }

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60 Responses to “Your Take: How Is Your Emergency Fund?”

  1. Aaron says:

    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.

    • Jim says:

      I think a strategy of tackling debt after you have a bit of an emergency fund is smart, good luck to you!

      • Aaron says:

        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!

        • billsnider says:

          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

  2. Leigh says:

    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.

    • Martha says:

      I was thinking something very similar this morning when listening to the NPR program on the low unemployment rate in Nebraska.

      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.

  3. moljacks says:

    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.

  4. Shirley says:

    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.

  5. 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.

    • Emma says:

      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.

  6. daenyll says:

    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.

  7. Anthony says:

    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.

  8. zapeta says:

    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.

  9. Courtney says:

    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.

  10. Charlie says:

    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?

  11. amh says:

    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.

  12. Ash says:

    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.

  13. JamesV says:

    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.

  14. freeby50 says:

    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.

  15. 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.

  16. Yana says:

    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 😉

  17. BrianC says:

    Right now I’ve got about 12 months, but if I go back to school that will get drastically reduced 😉

  18. Stefanie says:

    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.

  19. Mirinda says:

    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.

  20. Marie says:

    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.

  21. Dianne says:

    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.

  22. Monica says:

    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?

  23. 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.

  24. Pimpleff says:

    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.

  25. javi says:

    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.

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