I know we've bounced this around a few times before, but a reader wants to know:

 My next goal is to build a fully funded emergency fund. (I’m following the Dave Ramsey plan). I struggle with how much I will need in that fully funded emergency fund. Sometimes I think I need to take my income minus the extra that is going on bills and using that figure  6 months worth. Other times I feel that if I was in the midst of an emergency (lost job) I would cut out all frills, i.e., cable, any eating out, etc.

Would love to see some info on how much people should plan for per month and how many months they would feel comfortable with.

Would you please give your opinions to help her decide? Thanks.

Here are some questions I have asked myself about such a fund:

1. Do I have the money set aside to cover my home and auto insurance deductibles?

2. What if I needed to replace my roof? My washer/dryer/water heater/refrigerator/stove? (Hopefully I don't ever have to replace them all at the same time, but it's something to think about when funding your emergency reserves.)

3. What about unexpected car repairs?

4. Heaven forbid, an out-of-town family member become gravely ill or pass away. Could I afford to buy plane tickets for my family to fly there on short notice? Would I be able to afford the gasoline/food/lodging expenses of a road trip instead? And we have pets who would need to be boarded, there would be an extra cost in that.

5. Could I afford the co-pays/deductibles on my family's health and dental insurance?

In addition to adding up what money you'd need to cover lost income, I'd also consider these unexpected expenses. It would be a shame for me to dig myself out of consumer debt, only have to get back in the hole again because of these unexpected tragedies.

I think 6 months' reserves is great. If we ever suffered a job loss, my family would cut out all extras (what little extras we currently have!). So I would make up an emergency budget to see what is the bare minimum my family could exist on for six months. Then add in all the little "what ifs" we hope never occur, but Murphy's Law dictates will happen.

Well, if there isn't debt, I would say 6 months is a good aim.  Enough to cover 6 months of bills at least.  If job loss or medical condition were to be the cause of relying on it, then there could be unemployment and disability benefits to provide additional funds.  This money doesn't have to sit in a savings account earning nothing though . . . as long as a month's or so is instantly accessible, the rest could be invested elsewhere, you'd have enough at your fingertips to tide you over while waiting for a transfer from other investments.

If there is debt, then a smaller amount to get started.  $1000 works for a lot of people, but many choose to do more or less based on their income or expenses.

Honestly, I don't think you can ever have too much in savings!

Let me start by saying that as we've gotten older and better at budgeting, we have money set aside for monthly and yearly bills. This includes insurances and property taxes etc. On top of having those accounts we try to keep emergency funds between $8,000 - 10,000 set aside. This was not feasible when the kids were home and we've just gotten to this comfortable place in 2004. There are times when the money runs down for things like major car or house repairs, emergency trips or medical expenses etc. If things became tight, there are only a couple of places we could cut and come out ahead.

Pat:

Sometimes I think I need to take my income minus the extra

I go by my average expenses including the extras. Cutting back in an emergency is always a good idea but I think it's easier to use my current spending as a goal.

 

I'd like to have an emergency fund of about $6 million!

Seriously, though, a lot depends on one's circumstances. For example, if one has a high-paying very secure job in high demand, adequate disability insurance to insure against health-related job loss, no significant debt, life insurance to take care of family in the event of one's untimely demise, and so on then perhaps a couple of months would be adequate. Think registered nurse for example. There are always advertisements for them around here and they can find a job within a day or two. Just enough to take care of the normal unexpected expenses such as a car transmission repair or new furnace.

OTOH, if I was the sole wage earner for my family and I worked at General Motors, I'd be socking away every nickel I could so there would be enough to support everything for at least a year, preferably two, and be earnestly going to school part time to learn something with better job security.

So there really isn't any one specific number or percentage for everyone. It involves some measure of risk assessment/management while realizing that there are day-to-day concerns and necessities, and that one cannot and should not hunker down in a state of eternal disaster preparation. That's no fun!

IT depends on the emergency...; 0

Job loss.  The six month number is one that goes around a lot, but the economy right now might make 6 months with no job optimistic for some people in some industries--but it is still a good planning number. 

THe amount to cover in that 6 months, for me, would be Mortgage, utilities, food, any auto payments, including some for gasoline/maintenance,all monthly, quarterly and annual payments or dues (home owner associations, etc).  Also, find out how much COBRA health insurance would cost to keep your health insurance, if you would need that were you to become uninsured--or find out what other health insurance you might qualify.  Also, make sure to include all auto insurance, life insurance, home owners insurance, etc that you pay.  Figure out a low end grocery budget that you believe you could live on.  Given that most job searchs and applications are online, keeping daily access to the internet is probaby important.  A buffer for some unexpected dental is also good.  It really adds up, when you start including what all goes out.

 In less of a worst case scenario (ie, not a job loss, but emergencies) I figure you need to always have the amount equal to any insurance deductibles is important as far as that kind of emergency.  Know what your insurance covers in different situations. 

Of course, other emergencies (auto repairs, home repairs, etc) need to be kept in mind. 

 

This is a hard one for us... and I'm sure for others as well.

We don't have the extra funds that we'd need to save what I view as the ultimate emergency fund (paying ALL bills & expenses for 6 months or longer). And I doubt that we will be in that type of financial postiion (to be able to save that much) any time soon. LOL. We are working to pay off unsecured debt (getting closer and closer!) and after that we'll start saving that same amount we were paying out for a house. For the 2-3 years we'll be saving for a place of our own, that money will be there in case we need it for an emergency in the mean time.

But until then... my best advice would be to prioritize your budget needs during an emergency. For instance, food and shelter should be your first priorities.

- Food can be taken care of (for the most part) by working each week to buy a few extra groceries that are good for long term storage (i.e. canned goods, stocking up on basics, etc.). Having enough food in the house to keep people fed (but maybe not all your cravings) for 6 months isn't as hard as it sounds. You just have to think basics and do a little each shopping trip. Work now to print out recipes from the web using very basic ingredients (Hillbilly Housewife a good place to look) and practice them. Stock up on things like canned goods around the holidays. Go to the wholesale clubs to stock up on bulk items like rice, noodles, flour, baking ingredients, beans (LOTS of beans! cheap and a good protein when served w/ a grain), etc. These items are very cheap when bought in bulk at a wholesale store and will last a while if stored properly.

- For shelter, I think EVERYONE should have at least one month of rent/mortgage put aside for an emergency if you can afford it. We rent and we always make sure that we have cash on-hand to pay our mortgage or a month or so in case of an emergency. Even if we can't afford the electricity, at least it's a roof over our heads! LOL.

So, that said, food and shelter are covered.

But, IMHO, it's better to save what you can than getting overwhelmed and not saving at all. But for the rest of things.... if it was a true emergency: the credit cards could wait, the car could be repossed for all I care, wouldn't need daycare money since an emergency would probably mean one of us being home if not both; I've gone 8 months having very little extra money to contribute to electricity (while I was in school) so I could do that again if need-be, internet could be turned off, cell phones could be turned off, etc. No, that isn't the ideal.... but face it - we don't have enough to build enough of an emergency fund to pay ALL our stuff for 6 months or more. And while we are paying things off, I don't see how we'll be in that position to save that type of money any time soon. But at least I got the bare-min basics covered.

So, that's my personal suggestion (no expert of course LOL).... figure out the BARE MIN. that your family would need to put a roof over your head and food on the table per month and start saving that first. Whatever you are able to save over that, then great. It's alwasy good to have a budget (know where your money goes) but when you budget, perhaps color code it something like this:

- an absolute must (red), - shelter, food and at least some to electricity

- items that need to be paid to maintain good credit and keep your head above water (green) - any payments on loans, credit, etc.

- items that are extras or that could be easily done without (blue) - phone, internet, cable/satallite, insurance, misc. expenses

Have a blessed day,

Julie

In the real world, there no longer is job security. Several years ago, not during this recession, a friend sought a job for 1.5 years and had to declare bankruptcy along the way before finding employment. Another friend is in his tenth week of unemployment. Both had good paying positions, where they were food employees. Another, because of his age, probably will not find employment after being laid off months ago. On and on it goes.  

When Suze Orman upped her advice to 8 months of emergency money, I thought, How about 2 years? We have more than 2 years of an emergency fund because we saw the writing on the wall. Yet, at the same time, we share and give as much as we can to others. What goes 'round comes 'round.

 

 

Oops, that should have been good employees, not food employees.