thoughts on emergency fund?

[Anonymous]

liked the thread on annual percent contribution for building towards retirement, and in that there was some discussion of an "emergency fund", but was curious about thoughts on how much this should be? what do you think is a reasonable emergency fund for a family with two kids - preschool and elementary school aged?

[Anonymous]

OP here. would also be good to hear tips from those who are at a later stage and have reflections for this earlier stage in their life and a good safety net to keep..

[Anonymous]

General rule of thumb in 6 months of expenses.

We have closer to 4 and working to build toward 6. My husband is a fed w clearance and we believe his income is very secure.

[Anonymous]

6-12 months expenses depending on how secure your incomes are. Should be based on necessary expenses, not necessarily what you're currently spending if there are things you could easily cut back on.

[Anonymous]

parents

[Anonymous]

thanks.. parents sounds like a good idea but unfortunately not an option 6+ makes sense..

[Anonymous]

I'll be 50 next year with 2 kids under 10. Let's just say when you live paycheck to paycheck, you don't have to spend much time managing your emergency fund.

Six months of spending money in a fully liquid account (which today means basically zero interest) sounds like a great plan.

[Freeman]

You should also take your particular situation into account. My wife and I both work in completely different fields, so the odds of losing both incomes at the same time are extremely slim. Our goal is to have enough in savings to cover 4-6 months of expenses in that event. We also try to keep our expenses low enough so that the loss of one income, at least temporarily, wouldn't require us to dip into those savings. To the PP, it doesn't need to be a fully liquid account either, since you aren't going to need all six months at once. Ideally, you'll never touch the money, so you may as well have it somewhere that will generate some returns.

[Anonymous]

Freeman wrote:You should also take your particular situation into account. My wife and I both work in completely different fields, so the odds of losing both incomes at the same time are extremely slim. Our goal is to have enough in savings to cover 4-6 months of expenses in that event. We also try to keep our expenses low enough so that the loss of one income, at least temporarily, wouldn't require us to dip into those savings. To the PP, it doesn't need to be a fully liquid account either, since you aren't going to need all six months at once. Ideally, you'll never touch the money, so you may as well have it somewhere that will generate some returns.

I agree. For a while actually our "emergency fund" was a home equity line of credit that we had taken out but not tapped. That's not ideal but at the time it was a safety net and fortunately we didn't have to use it. Now we use a combination of internet savings and i-bonds (which are totally liquid after a year and have a pretty good return).

[Anonymous]

Freeman wrote:You should also take your particular situation into account. My wife and I both work in completely different fields, so the odds of losing both incomes at the same time are extremely slim. Our goal is to have enough in savings to cover 4-6 months of expenses in that event. We also try to keep our expenses low enough so that the loss of one income, at least temporarily, wouldn't require us to dip into those savings. To the PP, it doesn't need to be a fully liquid account either, since you aren't going to need all six months at once. Ideally, you'll never touch the money, so you may as well have it somewhere that will generate some returns.

I agree with this. Another thing to consider is whether you have long term disability insurance and whether you are going to need to dip into savings for things like maternity leave or house emergencies. We have about ten months of necessities in emergency savings - that includes mortgage, food, utilities. We also keep our necessities relatively low so that we can pay necessities on one income. The second income pays things like daycare, private school, kids activities, vacations, etc. we also try not to borrow money for anything.

[Anonymous]

We have one year's expenses saved in liquid form - two kids also. But we are mid 40s. Takes a while to get there.

[Anonymous]

Another thing to keep in mind is whether you define it as replacing one or both incomes. Per a PP, if you are in different fields, do you need to make sure that you have enough to cover the loss of one income for six months or two? DH and I are both government contractors and so presume the worst. We have roughly 6mos worth of emergency funds that are fairly liquid in savings accounts and a mutual fund. This is in addition to (super worst case scenario) our retirement funds and both long-term care and life insurance policies.

[Anonymous]

Anonymous wrote:Another thing to keep in mind is whether you define it as replacing one or both incomes. Per a PP, if you are in different fields, do you need to make sure that you have enough to cover the loss of one income for six months or two? DH and I are both government contractors and so presume the worst. We have roughly 6mos worth of emergency funds that are fairly liquid in savings accounts and a mutual fund. This is in addition to (super worst case scenario) our retirement funds and both long-term care and life insurance policies.

Do you need long-term care insurance? I am covered for short-term and long-term disability through my employer.... is this not enough?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Another thing to keep in mind is whether you define it as replacing one or both incomes. Per a PP, if you are in different fields, do you need to make sure that you have enough to cover the loss of one income for six months or two? DH and I are both government contractors and so presume the worst. We have roughly 6mos worth of emergency funds that are fairly liquid in savings accounts and a mutual fund. This is in addition to (super worst case scenario) our retirement funds and both long-term care and life insurance policies.

Do you need long-term care insurance? I am covered for short-term and long-term disability through my employer.... is this not enough?

Generally speaking short term and long term disability is what you *need*.

Long term care insurance is for covering nursing home or related in-home expenses after you retire. There is a lot of debate about whether it makes sense to buy LTCI and if so, when. Generally speaking, the advice I have seen is not to buy it if you don't have much in the way of assets (because you might as well rely on medicaid), or if you have a lot of assets (because you might as well self insure), and not to buy it before age 60 or so (it is of course cheaper to buy earlier, but you can end up paying 30 years of premiums before you ever need the policy, and in the meantime there may be changes in the policy or other things). Not to say it's a bad idea to but LTCI, but it's not something you should feel pressured to get.

[Anonymous]

Anonymous wrote:6-12 months expenses depending on how secure your incomes are. Should be based on necessary expenses, not necessarily what you're currently spending if there are things you could easily cut back on.

This. We have/had 12 months liquid assets as a combined emergency fund and general use fund. When I was unemployed, I found that despite job hunting for a couple of hours every day, I still had several hours of time to do more household chores. Being able to shop multiple places for discounts, cut coupons, cook in (we had eaten out much more when we were both working), clean (stopped the monthly cleaning service), etc saved us a significant amount of money. With about 35% of our monthly expenses going to the mortgage, I was still able to cut the remaining monthly expenses about in half and so we were only spending about 2/3 as much while I was unemployed. Also, filing for unemployment, while not a lot, helped a little. So after being unemployed for 6 months, we only used about 3 months worth of our emergency fund.