People who know me personally know that I can be damn stubborn. Tell me something needs to be done a certain way and I’ll question it and often end up doing it my own way.
When it came to emergency funds, I wasn’t much different. Sure I keep a modest sized buffer in my bank account, but I scoffed at the idea of keeping large amounts of cash at hand. It seemed to go against everything I was learning about investing. Here’s an older post about my previous thoughts on emergency funds.
I’m starting to realize that some kind of emergency fund is fairly important. I know in my case I don’t need tens of thousands of dollars in my emergency fund. I do need some kind of backup though. I can also see why in some cases a larger emergency fund might make a lot of sense, especially if you have kids or other dependents.
Sure you get a higher return by investing the money, but how accessible is that money at all times? Do I really want to resort to juggling a credit balance if I lose my job or run into other problems? That’s simply a gamble that may end up costing you more in the end.
When an emergency hits the last thing you want to be doing is adding stress by not being able to deal with the problem right away. Instead allow yourself to focus completely on the problem at hand.
To help fund your emergency fund, I am co-hosting a giveaway for $100 cash via paypal. Refer to the rafflecopter form below to enter the contest.
To help co-host further giveaways like this, please click here.
How big an emergency fund do you think is adequate in your situation? Do you already have that amount put aside?
When I was put off work a month earlier than expected because of pregnancy complications we blew through our ER fund
Trying desperately to rebuild it…hard being on Mat leave and in huge debt. We’ve already had to borrow money from the in-laws once when the rear brakes went on our truck. I will breath a whole lot better when we get it back up!
Sounds like a rough time. You don’t want to be stressing too much while pregnant though. Stress can be very tough on your body. I guess emergency funds really are there for things we don’t really plan for, such as having to leave work early.
What made you change your mind?
Personally, I think three months of expenses (no spending money) is sufficient. We have that, but now that we own two properties, we want a Mich larger reserve for condo related expenses.
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I think just having the ability to save an emergency fund made me think about it more. That and knowing that while I’m making better money I need to plan for the worst case scenario. Even though I am doing well at my job who knows how long it will last. I need to be better prepared for something like that.
I used to only have about $200 in my emergency fund, not enough to cover any emergency really. I was lucky that I didn’t come across any bad emergencies when I was working on paying off my credit cards, but now I have worked hard on building up an emergency fund. I think they are important to have.
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Yeah I can’t really think of many emergencies which would be covered by $200. I guess since that is such a low amount I wouldn’t really consider those expenses emergencies at all. I can appreciate that it is tough to build up an emergency fund while paying off high interest debt though. It wouldn’t be my main priority either.
Yup. This summer both of our AC units went out at the same time. Luckily we had the money in our emergency fund to cover the cost. It’s empty now, but we’re trying to build it back up again.
Talk about bad timing for them to both go at the same time. Good thing you were prepared. Who wants to go in debt just due to some temporary bad luck.
This is good food for thought. I’ve never had an official emergency fund. In the back of my mind I think I’d dip into a mutual fund in case of emergency.
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It is something to consider especially with your property rentals. There is always the possibility of some big expense popping up. You don’t necessarily want to be dipping into long term savings when that happens. The selling price might not be in your favor at that time.
We don’t have a typical emergency fund. We just keep everything in the savings and if we have to pull from it we pull from it. I do see the importance behind having one though and we are going to start working on it once we pay off the student loans in December. Theres just something I don’t get about leaving a bunch of money in savings (after a certain point) when I have debt I could pay down and increase our monthly cash flow.
Stan @DebtsnTaxes recently posted..October Budget & Net Worth Update
I’m the same way…if I was in debt I wouldn’t see the point of emergency fund. It really makes more sense when your money starts getting tied up in long term investments. When you’re in debt it’s usually more beneficial to pay off that debt as much as you can.
I recently was faced with a very small medical expense which made me realize that if I had a bigger medical expense, I’d be extremely happy about the decent chunk of change sitting in my bank account !
As a Canadian I don’t worry too much about medical emergencies. Most of that would be covered by our government medical coverage. Something like dental or certain treatments is another story though.
We’ve just started to get serious about ours! Great giveaway. And dramatic pic!
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I should get more serious about mine, but I need to figure some things out first. As for the pic, I figured it was pretty relevant to the current news.
While we don’t earn anything on the money in our emergency fund, I’ve been extremely pumped to have it available and it’s peaceful knowing that it’s there. I want to increase it more over the course of next year, but we’re trying to accomplish some other goals first.
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I don’t know how pumped I would be about my money sitting there essentially losing value. It’s something that I’ll struggle to accept. Really it probably won’t be until my first big emergency that I’d start to appreciate having that money more.
We live in an area where even covering deductibles on insurance claims if there’s a big storm could be a VERY big deal. If a hurricane did major damage to our properties, even the covered portions would have deductibles upwards of about $11K, not to mention we’re self insuring part of our property as well that could possibly sustain another $20K+ in damages in a major storm. So we keep a fair amount in cash on hand for peace of mind in that department. Maybe it’s not the most efficient use of the capital, but the peace of mind that we get from it is worth the investment in cash for now.
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That makes me glad that I don’t live in an area like that. It may be expensive to live here in Vancouver but we don’t have to worry about stuff like that. Well we did get a big earthquake not too far away recently. So we were forced to consider the possibility of a big earthquake hitting close by and doing serious damage.
We have a 6-month emergency fund but haven’t had to tap into it. We had a minor emergency when we had to replace our car starter. Thankfully my dad is a whiz with cars and replaced it for us!
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Wow 6 months is a hefty emergency fund. That probably is a wise move, but I don’t think I could leave that much cash uninvested.
I’ve got a 2 month emergency fund but we have been fortunate enough to not have needed to use it!
I think that is an amount that I might be comfortable putting aside. It may not be touched for a while, but it would be nice to have when something bad does happen.
I used my emergency fund/savings to pay off my car loan last month, so my savings is pretty small now. But, I’ve got way fewer bills than I used to have so I think I can swing by as I focus on debt and not savings (as much as I would like to). When my debt is paid? I think $2000 is more than enough to have in a low-interest savings account. I want all other money to be working for me!
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I’d be tempted to use an emergency fund for something like that too. When going that route it does make you question the point of putting the money aside in the first place. If it had went directly towards that car loan debt in the first place it would’ve saved you some money in interest.
Great idea for a contest! I had to buy a new fridge. It wasn’t pretty at the time (the fridge was, situation wasn’t).
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I can’t take credit for the contest idea. I just went along like a lemming. Needing a new fridge would be a pretty pricey emergency and one that you might not be able to wait on. So an emergency fund in that situation would really help.
Gotta like a good giveaway
Time to add to those emergency funds!
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I’m all for giveaways too, especially after winning 2 prizes on other blogs’ giveaways last month. Time time to repay the favor.
I feel like emergency funds are useful for most people, but I have yet to jump on that bandwagon for my own finances. I just can’t really see any probable situations when I’ll need one. I think the reason I’m an outcast in this category is because I don’t mind going into debt, and most people do :0)
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I think in your situation you are probably fine. If the thought of debt doesn’t stress you out, then it’s not really an emotional advantage. I’m sure there is some way you could liquidate some investments if you really needed to.
We have an EF that will last about 2 months. I want eventually $10K in ours. Hopefully next year we will be there, it will be one of our 2013 goals.
We’ve had to tap into once, a big reason why I believe in it
Mark
My Own Advisor recently posted..Reflections of a first time home buyer
I recall reading about your goal to increase your emergency fund. I think it would be tough to manage while also having investing goals. It seems it would limit your investing productivity. After needing to use it, I’m sure you think about it different now though.
I believe we could make ours stretch for about 3 months. I’d love to have 6, so that’s the goal.
Kim@EyesontheDollar recently posted..Everyone Needs an Emergency Fund and a Giveaway!
3 months is quite a while, but it really depends on your personal circumstances and what kind of emergency you might face. If you would be more comfortable with 6 months, then it’s probably a good goal to shoot for.
If and how much money you need to save depends on the diversity of your income. We can live off my wife’$ income without citing to much out and even my income could cover most of our expenses. Plus, there it’s unemployment. In reality we would both have to lose our jobs in a way that was unacceptable to the UI office before we would have to touch emergency savings.
Good point Edward. You do have to remember that there are other emergencies other than just losing your job though. What about medical emergencies or if your trailer burnt down. It is those unforeseen emergencies where an emergency fund is especially critical.
I have a few months worth in cash in an online bank account. The rest is invested in short term bonds. They are safe enough that that I won’t lose my shirt overnight and offer a small, but higher rate of return. Plus the money is liquid enough that if I really needed to, I could get my hands on it within a few days.
MoneySmartGuides recently posted..The Importance of an Emergency Fund Contest
I should probably set up a tiered emergency fund system like that. If necessary I could dip into my retirement savings, but that probably wouldn’t be a very good idea. Instead I’d probably end up juggling it between credit cards or my life of credit.
Emergency Funds are a must! It seems many people recommend 3-6 months of living expenses. I believe this has ticked up now to 6-9 months or even 12 months of living expenses. Finding a new job after being laid off is more difficult than ever, and its good to keep yourself covered.
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I just don’t think that amount is necessary when you have investments to liquidate in very tough times. In my case I have other income coming in that could help support me. Having kids might make me more likely to push my emergency fund up to 6 months, but even then I’d probably be tempted to have part of that in short term investments.
What an awesome featured image! Love it…Statue of Liberty never going down. I also totally agree with emergency funds. You never want to get caught with your pants down.
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Yeah I’m a little surprised that photo had copyrights for people to use for free. It is a crazy shot. A lot of people on the east coast are realizing the importance of an emergency fund these days.
I have my emergency fund well stocked at 6 months’ expenses in cash, plus my car, health, and condo insurance deductibles. I was seriously debating having a 12 month emergency fund before buying a place, but I eventually decided that 6 months was more than enough.
I am totally okay with it earning very little interest because knowing that that cash is there is an amazing feeling to me.
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For some people that peace of mind is priceless. I’m still not sure if I’m one of those people, but I could use a bit of security. I know I probably shouldn’t be relying entirely upon credit for emergencies.
I’ve had to use my emergency fund many times over the last few years. First our washer died and then the dryer (or was it the other way around…). Most recently, our dog needed surgery for $700.
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Those definitely sound like some things that you wouldn’t want to wait for. Health emergencies whether it be for yourself, your family or your pets is one of the top reasons that people should have at least some kind of emergency fund.
I used up my emergency fund when I lost my job and got sick and was hospitalized. I think a minimum of six months worth of your take home pay should be reserved for emergency fund.
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That’s shitty timing that you got sick after losing your job. 6 months does seem to be the standard, but that’s a lot of money. Since I have side income coming in too, I just don’t see myself needing that much.
My husband and I have kept a 5-figure emergency fund for most of our marriage; it’s all about comfort for me, even though we’ve more or less never touched it (we did dip into it once to pay down a debt, but that was planned). Lately, though, I’ve started to wonder if I’m overdoing it – and if some of that money would be better invested elsewhere.
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If you’ve never had to use most of it other than dipping into it once, you very well could have too much money committed there. You might find that you are still quite comfortable with an emergency fund that is much smaller.
Yes, an emergency fund is vital to families. Who knows when disasters will strike? I think that your position borders to practicality. But there’s nothing wrong in making investments for as long as these are wise investments.
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Well as a new investor I can’t say for certain whether my investments will be wise. I’ll have to ask my investment blogger friends plenty of questions to make sure I am making good decisions. There are ways for me to get money if necessary though. So it’s not like I’d be relying completely on my investments if something bad happened.
I had to tap into a very limited emergency fund in my first year out of college due to medical testing that wasn’t covered by insurance. Starting to build the fund back up in case of any unforeseen emergencies in the future – something at the top of my mind after seeing the impact of Hurricane Sandy and other disasters.
Good thing you had that fund to cover your medical testing. Without that you’d be wasting money paying interest on some debt. The weather related emergencies does open people’s eyes about being properly prepared. Most people first think of backup food and water but they might not remember that they could need access to cash at such times.
Yup. I used it back in May to fix my brake line that had corroded away. I’m still working on getting it back to fully funded.
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That’s something that really can’t be delayed. Luckily you found out about that problem before it lead to a nasty accident. Good luck building that emergency fund back up.
I’ve never really had a true emergency fund, but I am currently working on building one as I also pay down debt, because I’m quite tired of having to put sudden expenses on credit cards and then being stuck with that debt for years!
It is a back and forth battle when you are trying to pay down debt and emergencies keep popping up. I would base that decision on what kind of debt you are trying to pay off. If the debt you would take on from emergencies is the same or lower than the debt you are paying off, I’d tackle the existing debt first.
We had to use our emergency fund for some car repairs and hospital bills. Definitely is nicer to have some cash easily available for a pinch.
It would be an extra burden off of your mind in times like that. Once you get over not gaining interest on that fund, it really is a great way to help with the psychological side of emergencies.
We had to dive into our emergency fund when I wrecked my car.
I guess the insurance didn’t help enough. When I wrecked my last car I did owed too much money on the financing. So the insurance payout went mostly to that.
Yes, but not the entire fund was used. We had a situation arise when a relative passed away there was no one to help out. Even with nothing fancy and cutting the costs to a minimum it was a large expense we of course could never recoup.
Now that’s one unexpected cost that most people would not be planning for. Good thing you had funds available to cover that expense without going into debt.
When I was pregnant, we had to use our emergency fund to pay unexpected medical expenses. We’re still working on building it back up because the medical bills continue to roll in for various reasons.
Damn those medical bills. They do really know how to milk you for all you’re worth. It makes me glad to be in Canada where we pay into a government plan to prevent those types of situations.