Accepting The Value Of An Emergency Fund Comments68 Comments

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.

a Rafflecopter giveaway

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?

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This entry was posted in Giveaways, and tagged , , Comments68 Comments
By : Jeremy Biberdorf | 1 Nov 2012
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68 thoughts on “Accepting The Value Of An Emergency Fund

  1. Catherine

    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!

    Reply
    1. Jeremy

      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.

      Reply
  2. Brian

    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.

    Reply
    1. Jeremy

      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.

      Reply
  3. Grayson @ Debt RoundUp

    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.

    Reply
    1. Jeremy

      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.

      Reply
  4. Marthalynn

    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.

    Reply
  5. Terry

    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.

    Reply
    1. Jeremy

      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.

      Reply
  6. Stan @DebtsnTaxes

    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.

    Reply
    1. Jeremy

      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.

      Reply
  7. Gillian @ Money After Graduation

    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 !

    Reply
    1. Jeremy

      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.

      Reply
  8. Jason @ WorkSaveLive

    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.

    Reply
    1. Jeremy

      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.

      Reply
  9. Mrs. Pop @ Planting Our Pennies

    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.

    Reply
    1. Jeremy

      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.

      Reply
    1. Jeremy

      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.

      Reply
  10. American Debt Project

    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!

    Reply
    1. Jeremy

      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.

      Reply
    1. Jeremy

      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.

      Reply
  11. Liquid

    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)

    Reply
    1. Jeremy

      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.

      Reply
  12. My Own Advisor

    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

    Reply
    1. Jeremy

      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.

      Reply
    1. Jeremy

      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.

      Reply
  13. Edward Antrobus

    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.

    Reply
    1. Jeremy

      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.

      Reply
  14. MoneySmartGuides

    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.

    Reply
    1. Jeremy

      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.

      Reply
  15. Jason Clayton | frugalhabits

    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.

    Reply
    1. Jeremy

      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.

      Reply
  16. John

    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.

    Reply
    1. Jeremy

      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.

      Reply
  17. Leigh

    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.

    Reply
    1. Jeremy

      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.

      Reply
  18. Kay Lynn

    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.

    Reply
    1. Jeremy

      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.

      Reply
  19. Money Soldiers

    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.

    Reply
    1. Jeremy

      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.

      Reply
  20. Elizabeth @ Broke Professionals

    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.

    Reply
    1. Jeremy

      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.

      Reply
  21. David @ Bankruptcy Canada

    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.

    Reply
    1. Jeremy

      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.

      Reply
  22. Shannon

    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.

    Reply
    1. Jeremy

      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.

      Reply
    1. Jeremy

      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.

      Reply
  23. Kelli

    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!

    Reply
    1. Jeremy

      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.

      Reply
  24. Andrew

    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.

    Reply
    1. Jeremy

      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.

      Reply
    1. Jeremy

      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.

      Reply
  25. ellen beck

    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.

    Reply
    1. Jeremy

      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.

      Reply
  26. Debra K

    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.

    Reply
    1. Jeremy

      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.

      Reply

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