Let's discuss emergency funds!!!

[ironmaiden]

Let's talk about how much should be in an emergency fund.
What qualifies as an emergency i.e. a reason for dipping into the emergency fund.
And where should this money be stored/invested.

[ironmaiden]

Reading another post, someone mentioned that her hubby's stock plan was their emergency fund.

A stock plan is NOT an emergency fund. Emergency funds are supposed to be in non-volatile investments i.e. as safe as can be - money markets, savings accounts. And they have to be accessible within a couple days at most.

If you were an Enron employee, your stock plan would be worth $0 and you would have NEEDed that emergency fund to live off of and in your case, you just lost it.

And you never know when a company could get sold, and what that does to a stock price, run into the ground, bankruptcy, a scandal or other event that tanks a company - even the price of oil, company's focus becoming obsolete, threat of war etc. Nevermind bigger stuff like the Great Depression, Black Monday etc. So you'd never truly know what you have in that "emergency fund" as it is not stable.

I was given stock options once and the company promised that they would pay off my house in a couple years. In the end (one year later), the company declared bankruptcy and the options and whatever company stock anyone bought was literally gone.

Companies can freeze employees from selling their stocks.
Companies can make you wait and wait and wait til you get that cash.
Some companies only do these transactions once a month.
Stock prices can plummet and your 3- 6 months of survival money could be worth less than a weeks pay.
Most company plans are tied into a 401K and thus are not for pre-retirement access.

Stocks are for long term investing. Not short term. If you were planning to buy a house in 3 years, you would not invest that money in stocks.

It is great that you are taking adventage of your DH's company's stock plan. But it is not your emergency fund. The emergency fund is when the hot water tank goes, you find out you need a new roof, the car needs $1000 bucks worth of work, an injury/sickness that requires time off from work (even short term disability pays only about 2/3rds of your salary depending upon your plan), the layoff... These are normal life events - sooner or later most of these "emergencies" happen. It's not like planning for a once in a lifetime disaster that may never happen.

[bee9984]

Let's talk about how much should be in an emergency fund.
What qualifies as an emergency i.e. a reason for dipping into the emergency fund.
And where should this money be stored/invested.

Well I like Dave Ramseys baby steps plan and babystep #1 is to get $1000 in the bank for your emergency fund ASAP If your household income is below $20,000, make that $500.

Here are his baby steps

Baby Steps to Living Like No One Else!
(TIP: press the ?F5? key to hear Dave Speak again)

1. Save a baby emergency fund of $1000 cash in the bank. (If your household income is below $20,000, make that $500.)

2. With gazelle intensity, begin paying off all your debts, smallest to largest, using the debt snowball.

3. Once you have become debt free (except the house), go back and raise the emergency fund to 3-6 months of expenses.

4. Begin your retirement savings by investing 15% of your income into one or more types of retirement accounts using mutual funds.

5. Start saving for college for each of your kids in an educational savings account, again, using mutual funds.

6. With no debts except the mortgage, time to get rid of the mortgage!

7. Build a ton of wealth and give it away!


I make sure that we have access quickly to at least $500 at my bank , I cannot use a debit card on this account but I can transfer funds if needed with online banking or I can go into the bank (which is a 25 minute drive away)

I opened up an ING account just this past month and I just LOVE ,LOVE, Love it! It takes about 2 to 3 business days to have the money transfered out of your account so it really makes me think......hmmmmm do I really need to use that now? Nope lol.

Now we did have some emergencies going on........Murphy visits, like last month our car went Ka-Put so we replaced it with an older van, the van then blew a tire so we had to get a tow truck and decided that yes, we do Need 4 new tires as we didn't want to chance any of the older 3 tires blowing......and then of course, our downstairs bathroom had a leak in the pipes which are in the ceiling so that needed to be repaired ASAP. In saying all of that, we had enough in the emergency fund to cover all of that with cash YAY! Last year this time we were still living from Pay to Pay and we would have been really in a panick wondering where we would get the money for all of that.

Anyhow, we are back to building it up now.....sort of like we are on a mission

We have as of now $713.73 in the emergency fund and I am going to see how we can scrape up as much as we can to get that baby back up to par. It is really motivating when something does happen and you don't have to build up a sweat......well at least not too much of a sweat........lol.

those were all emergencys to us......I guess what isn't an emergency to us would be furniture, new clothes , treats etc........we don't deprive ourselves with the treats but we try to possible make our own.....or we save up our change in the change jar and then we will have our chip , pop, and movie night on Friday nights or Saturday nights.....something for us to look forward too but we by the noname chips,pop and rent a $2 movie. Our library here does not have movies .

[FarmerSue]

I agree, an emergency fund needs to be in your hands within a day or so. Personally my goal is $1000 in my fund until I get my debts paid and then 6 months worth of living expenses after that. Right now I'm just over $500 and am putting my $50 birthday money in today. I CAN access my fund through my debt card chosing my savings option instead of chequing. Some may disagree with this, maybe you think it is TOO available but I think of it as EASIER to deposit into.....$20 here or there has added up. An emergency to me is being stranded somewhere with van trouble.....shudder.....living out in the sticks the thought of that gives me the shivers!!!!!

[i.m.cheap]

I want us to have an emergency fund, but right now, I would settle for a grocery/gas fund! DH has GOT to find a better paying job soon! We both got paid yesterday, and after paying our rent, we have $25 left to pay for food, gas, everything, for the next TWO WEEKS. We make about $100 a month too much to qualify for any food stamps or anything. We don't have any debt, but we also don't have any health insurance. I think we will be walking to work before we get another paycheck, because there will be no gas in the car.

[pammy]

We're on Dave's plan, too, and have the smaller $1000 emergency fund. An emergency is things you didn't see coming or could plan. Since we don't have sinking funds set up, for us this would include car repairs, home repair, sudden out of town trip (family illness, funeral, etc.) or job loss. Injury and illness isn't much of an emergency for us, our insurance goes through first and then the what we owe is billed to us, so it's paid like a bill. Illness, as dh's the sole income, is taken care of with sick days (he's missed 2 days in the past 8 years), vacation, etc. He's on salary so no loss of hourly wage. We're aiming to start funding it bigger in October, with a goal for the 5k mark.

Right now I'm keeping the emegency fund in our checking account. I treat it likes it's not there and my account shows $0. Later on when we beef it up we may open a money market account with check writing capabilities. For now I feel we've got learned behaviour to not touch the emergency fund, we're on a cash system. I write out bills every other week and don't touch the checkbook again til the next time I pay bills. So I'm not worried that we'll spend it frivolously. But I like that we have it there whenever we need it.

[Emerald_Mommy]

We follow Dave's plan so right now we're trying to get 3-6 months expenses in our emergency fund. Right now we're at a little over one month so we've got a ways to go. We have 2 ING type accounts for the bulk of our emergency fund plus some in our regular savings account. The rest of our usual savings account is saving up to pay cash for things like a van, furniture, vacations, etc.

[starsapphire]

Let's talk about how much should be in an emergency fund.
What qualifies as an emergency i.e. a reason for dipping into the emergency fund.
And where should this money be stored/invested.

I think $500 to $1000 for a baby EF is good if one is working on paying off debt like I am. Right now I have $489 in my EF. I keep trying for that $1000 but Murphy keeps paying visits LOL. Once my debt is paid off (will be the end of November) I will work on putting away at least 3 months worth of money in my EF.

My reasons for dipping into it was my daughter needed some money because they were in the middle of moving and had a cash crunch. And I had some medical bills come due, and DH needed some help paying one of his bills.

If I really really had to, I have a small amount of money in my Roth IRA I could pull out. But I doubt I'd do it, I consider that money to be inaccessible.

Where to keep the EF? Right now, mine is just in my checking account. I had a separate savings at another bank but they were charging me too much in fees so I closed it. I'll get another savings account in the near future, I'm just not sure where yet. I think an online savings account like at ING or HSBC is good, your money is accessible but not TOO accessible.

[frugalfarmwife]

We keep a larger EF but when Murphy shows up here he shows up BIG TIME! I keep the EF in an ING account because it pays 10x's the amount of interest I'd make at my bank in a savings acct! Last month alone we had to hit the EF to the tune of $1,400.00 for equiptment repair and emergency Vet bills, SO GLAD THAT MONEY IS THERE!

kj

[ewokgirl]

Right now, our EF is in our savings account. It was pretty big a few years ago, but I became very sick, and the resulting costs, along with some visits from Murphy pretty well depleted it. We've worked on building it back up, but every time we do, something comes up. *sigh*

I don't really consider this just an EF. I refer to it simply as our savings account because it is where I stick our savings for whatever we're wanting to save up for. We're going to London at the end of the year, and our spending money for the trip will go into the savings account. Thankfully, I'll be able to contribute a rather large amount to the account just this month.

In a serious pinch, I have an ancient whole life insurance policy with over $2000 value on it. I could cash that in if we really, really needed the money. I have a MUCH larger term life policy, so it would hurt anything if I cashed it, then died.

[peanut]

Our EF is in a money market fund at a different bank where we have no other accounts. Money is transferred automatically on payday by the banks. That way we can't get to it easily.

Used to be we'd build up an EF and dh would see the money sitting there and get the "I want"s. Now we get a statement every month. If we want the money we have to walk to the bank...takes forever and it's downtown where the parking is miserable. It still takes 2 days for the money to be transferred to our bank account at a different bank. We've made it as hard as we can for us to access that account, and still keep the money liquid.

We have decided the current EF is for 3 months living expenses should dh be out of work, and for burial purposes, should he die. That works out to $6000cdn. He's covered by life insurance through work right now, but he doesn't believe in insurance and plans to get rid of it as soon as he can. I am more than a little nervous and insisting he have enough to bury him in the account.

Any other big ticket items will be saved for in a different account in another bank. Ie. money for a new car, roof repairs,furnace replacement, window replacement, etc. All things we are likely to need in the next ten years.

Jean

[MandiDawn]

I'm struggling with this right now. I currently have $3000 in my EF. I'm wondering if I should continue so that I have 3-6 months in there, or if I should take some out to pay off debt (car loan) or maybe buy some equity funds after I reach $5000. I hope to have $5000 next december if all goes as planned (ie no emergencies). Mine is in a regular saving account at my bank.

[ewokgirl]

Oh my gosh, Peanut! I hope you can talk some sense into your DH about life insurance! It will cover cost of burial AND take care of you after he's gone! (Loss of income could be devastating.)

We found out my DH has kidney disease a few years ago when we were applying for life insurance for him. They had him do blood and urine tests to make sure he's healthy, and the urine tests kept coming back funny. Several doctors appointments and a kidney biopsy later, we learned he has kidney disease. He was deemed uninsurable. Talk about scary! We finally found a company that would insure him for accident only, but it cost us way too much money. We paid it anyway because we needed that insurance.

Thankfully, he started his current job almost a year ago, and the company is big enough that they insure all employees regardless of medical history. We chose the maximum coverage and praised God for it!

I'm a SAHW, so I was very concerned about something happening to him, then I would be left with nothing. I used to be an English teacher, so I'm employable, but schools typically only hire once a year, and maybe twice. It could be months before I would be able to go back to regular work.

Please try to talk some sense into that DH of yours!

[Telephus44]

We don't really have a separate EF - basically we try and keep a $1000 cushion in our joint checking account, so if something unexpected comes up, we can dip into that. This was actually part of the reason that we were able to pay off ALL of our CC debt in June, because we chose to keep some money "just in case" (the last card is at 0%, so we're not out any more interest, but we do have a month of peace of mind!)

I agree that using a stock plan as an EF is not the best idea, however it is realistic to take these things into account. I started another thread just on this idea because it got me thinking.

[autumnlynn]

I am also working the Dave Ramsey Plan. I currently have $1,225 in my bef. I am adding $100 a month to this fund while I am using the rest to snowball to debt. I am adding this extra $100 a month as I am a single mom and feel I need a little larger cushion