What's your Emergency Fund Philosophy?
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  1. #1
    Registered User greekislandgirl's Avatar
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    Default What's your Emergency Fund Philosophy?

    I thought it would be fun to discuss how we all think of / plan to use our emergency funds (at whatever stage they may be!).

    Personally, my philosophy (which is definitely evolving over time) right now is:

    How much: enough for 6 months' bare necessities for the two of us, assuming ZERO income. For us that's 6000 if we're extraordinarily frugal (1200 calories/day, no gasoline, etc.). If we had to take care of others, it would dramatically reduce the amount of time we could do so. DH's parents are the ones I'm mainly thinking of.

    How saving: I'm saving for it, but not exclusively. It's exactly 2/3 of the way to being "full" but I'm also putting money aside in other places, for things I know I'm going to use (examples: Moving Fund, Wedding Fund). Lately I've been putting chunks of money into it when I have unexpected or irregular income (like a birthday present, tax refund, side job), rather than putting a certain amount per week or month. I did however put money in weekly until I got to 1/2 (i.e., 3 months' expenses). All our other savings in those other funds, even though it's called Moving Fund or whatever, would be able to be used in an emergency also, if things were really desperate.

    How planning to use: my idea is that the money is for any of these: 1) health catastrophe beyond what is covered by insurance or our (admittedly small) medical budget, 2) need to travel suddenly for a family emergency, beyond what's in our Travel Fund, 3) pay rent, groceries, bills if we lose our income (husband's salary), 4) car problem that isn't covered by insurance and beyond what is covered by our regular car service budget - but only if we couldn't use public transportation while saving to fix car instead, 5) legal catastrophe that means we need a lawyer, 6) natural disaster.

    Used yet? On what?: not yet - started June 2010 and haven't had to use it yet, thank goodness!

    Pay back: So if I do use the EF, how does it get re-filled? I am thinking that the first 1000 would be my first priority - any money coming in after our bare necessities to survive would go to that. After that was in place, I'd go back to putting some away every week until it got to 1/2, then to putting away as money comes in until it gets up to full.

    What about you?

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    I really like this thread! I haven't thought a lot about it before!

    How Much: My first goal is 5000$ which would cover about 4 1/2 months of living fairly comfortable with no changes to my budget other then not adding to savings. We have some garenteed income every month that would cover the difference. So I could cut to a bare bones budget and make it last longer.

    How Saving: Im putting money into it every month, I'm also putting money away for Christmas, car, dd, and a misc savings. Anytime I get any unexpected money it goes right to the ef. My original plan was to meet my goal by dec.31/2011 but it's looking like I'll be able to by April 31/2011!!

    How planning to use: this is one I haven't thought much about. I'd use it if me or dd were to get sick, If I lost my income, if there was a family emergency, if my car were to break and it cost more then my car maintance fund, that's about it for right now.

    Used yet? Not really, I had 700$ in my bef that I used towards a car but never out of my big ef.

    Pay back? I would first fill my bef of 500, then a 1000 in the big ef until I got back to my goal.

    Once I hit my goal I plan on taking a month break and taking dd on a weekend trip. Then I will raise my goal and keep on saving!

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    Registered User Emjo's Avatar
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    How much: Enough for 3 months of expenses if we had absolutely no income, or 6 months of expenses if DH was laid off and receiving EI. For us, that's $10K but right now our goal is $6K to start and then focus on debt repayment.

    How saving:
    At this point, just tax refunds. We will be at our $6K goal when we get this year's return.

    How planning to use: Mainly if DH is laid off or unable to work. Our car is under warranty for anything other than normal wear and tear, and we have excellent medical coverage. We live in a condo townhouse, so exterior things like the roof aren't a problem. I would have to use it if we needed to replace the water heater or furnace though.

    Used yet? On what?: I can't remember the last time I had to dip into the EF...I think a couple of years ago on a major car repair. We've cash flowed quite a few car repairs/unexpected expenses since then...and got a different car!

    Pay back: I would probably pay minimums on debt until we got it back up to at least $3K, then go back to refunding with our yearly return.

  4. #4
    Registered User pollypurebred39's Avatar
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    How Much Boy that's a loaded question. We "had" a very large EF that covered all our bills, debts and needs. We made it about a year before we had to start hitting our savings, then our investments. We now have nothing left, my husband has been laid off for over 3 1/2 years! Two very small jobs (weeks) in between, one in year two, one in year three. So if I were to have to give a number of years for an EF fund to cover, 5? no, seems like not enough. Maybe 10, and even that would not make me feel secure unless our savings equaled it, and we built back all our investments plus.

    How Saving we are not. Every cent that comes in this house goes to pay bills. Praying in a lasting job.

    How would we use Same as before, layoffs.

    Used yet Yep, all of it.

    Pay Back Got to get back to work first

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    I thought it would be fun to discuss how we all think of / plan to use our emergency funds (at whatever stage they may be!).

    Personally, my philosophy (which is definitely evolving over time) right now is:

    How much:$5,000. Right now we have just over $3,000.

    How saving: $50 per pay period. We're paid every other week, so that's $100 most months.

    How planning to use: Any emergency that's too big for our regular cash flow, but small enough to cover with $5K. This would include major car repairs, plane tickets for a funeral, emergency medical costs. As part of our money management, we can usually handle most things simply by cutting back on eating out or whatever for the month - we haven't "had" to dip into the EF for a very long time. On the other hand, any emergency that's over $5K I want to be able to plan for. If I need a new roof, it may be better to take out a HELOC - or if the car gets totalled it may be better to put the expenses on a credit card until the insurance check comes in. I can't imagine any emergency where I need to come up with more than $5000 IMMEDIATELY.

    Used yet? On what?: Last time was because DH took another job and we used some of the money to pay off his 401K loan to avoid the tax penalty. I guess that this isn't technically an "emergency" but it did save us on taxes and allowed us to keep the money towards retirement.

    Pay back: Probably keep doing the $50 per pay period - maybe throw in some extra to get it up to $1K really fast.

    Note on job loss - I know that a lot of people are using their EF as a back up for job loss (to cover the bills if you are out of work, hence the 3 months, 6 month, whatever of expenses. We are hedging this by having a 2 income household. If DH loses his job and doesn't get unemployment, I still have a paycheck and vice versa. We wouldn't be able to save anything, but we can cover basic expenses on just one of our checks. I realize that technically we could both lose our jobs at the same time with neither of us getting unemployment, but I consider the odds of that to be pretty remote, and thus I'm not going to save cash for it.

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    This is interesting stuff.

    How much: We have exactly EUR 1000 in our BEF.

    All other saving targets such as car maintenance, new (read: used) car fund, household appliances replacement funds, yearly insurance fees, computer replacement funds, etc, are kept in a different account, accruing over time.
    This amounts to quite a fair balance at certain times, but is out of bounds for anything other than the stuff it has been earmarked for.

    How planning to use: Well, BEF for emergencies. Replenish first and foremost.

    The other saving account has the money purpose earmarked by definition.

    Used yet, on what: Minor unexpected broken down appliances, one car repair exceeding pre-saved amount. Took the balance from the earmarked account and what was missing from BEF.

    Payback: BEF first, if possible beef up monthly saving amount on earmarked account to to get the balance for said item up a tad although not back to previous level immediately.
    Start date: May 20th, 2009
    Babystep 1: Emergency fund - done; 1000 EUR
    Babystep 2: Debt snowball - done; 23300 EUR (Paid off, Apr 2011).
    Babystep 3: Fully funded emergency fund - done; 18000/18000

    Disclaimer: Male hormones are at work in close proximity to this key board. Therefore, please bear with me and if push comes to shove, please do blame anything stupid said on male 'logic'.

  7. #7
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    How Much: No less than 6 months, currently 1 year with minor lifestyle changes.

    Saving: Established, so no current need.

    Used Yet/For: Never used, but would be for job loss, major home or health crises, car explosion.

    Payback: This obviously depends on the circumstances, but I would try to keep current on all bills, and put anything extra into the emergency fund until restored.

  8. #8
    Registered User dcompton's Avatar
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    How much: I have two accounts - one is short term in-and-out saving, not strictly emergency, since I also use it to even out cash flow. Sort of a hybrid emergency/sinking fund. I like to keep this at around $1000, but don't worry if it drops for a while below that. The other I think of as long term, which is, I guess, more my true emergency fund. I used to have 6-9 months of expenses, but I've dropped that to about 2-2.5 months, putting the difference in an IRA (don't yell yet, Greebo).

    How saving: I basically leave the long term one alone. The other I add to when it drops below my goal. When I need to add to it, I use money I would normally use for non-payroll retirement contributions.

    How planning to use: As I said, I use the short term to even out cash flow from time to time. The other is for bigger emergencies. I would use it in case of job loss, serious car issues (no car, no job), or health costs. Or anything coming out of left field I wasn't expecting or planning for. It happens.

    Used yet? On what?: I haven't had real emergencies that forced me to use the main emergency fund. The in-and-out I drawn on for insurance payments if they exceed my normal cash flow, larger car maintenance bills, or to cushion an unusually and unexpectedly expensive month.

    Pay back: As soon as possible if the short term one falls below $800, but not at the expense of retirement savings. If I had to dip into the larger one, pay back would before the main priority.

    Why so small? For a lot of reasons I have ended up playing serious catch on retirement savings. For now my job is, as far as it is possible to guess, secure. I have excellent health insurance through my work, and long term disability insurance. I am old enough to start drawing on retirement accounts without penalty in a catastrophe, though of course, I don't want to do that until I absolutely must. Because of this, when interest rates on savings dropped so precipitously, it seemed better to put more into investments. If/when any of this changes, I would re-evaluate and most likely increase the emergency fund.
    Donna

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    Registered User khaski's Avatar
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    My turn:
    How much: Aiming for 8 months, at current lifestyle (which is 'low' but not 'bare bones'). Why so much? As our country's current economy has shown, it can take 1+ years to find a new job, and while we do not anticipate a job loss, it's nice to be prepared!

    How saving: Currently we are 'snowballing' our debts, have been for 8 months now, only $8k left to go (without mortgage). Adding to it slowly, $100 here, $50 there, will REALLY start at it when debts are all gone. Account at credit union. Currently at about $2k, but need to get there to deposit another $1500 from tax refund, so $3500 soon.

    How to use: For 'big' car or home repairs costing over, say, $1500. $ would be replaces as quickly as possible.

    Used yet: Nope, hubby's business has been VERY busy the last 6 months or so, enabling us to cash flow the this-or-that that comes up. I'm also pretty good at 'budgeting ahead' for those once in a while costs like septic pump, chimney clean....

    Looking forward to the financial security of having $20K+ in the bank in a few years or less!


    Kill the mortgage! Goal: 12/2023 Left to go: $141,279.52 Extra paid: 2012- $4408.03 2013-$5396.21+ $400 extra towards escrow
    2014-$2548.29

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