Despite my recent musings about the efficacy of emergency funds, I honestly do want one. A robust one. One that can make it through the Oregon Trail without dying of dysentery.
The question, though, is when is your emergency fund… done?
The conventional (pre-recession) wisdom was 3 months’ expenses. Now you hear anything from 6-12 months. There are other people have an actual dollar amount. One reader had her EF hit $10,000. Another mentioned that $2,500 is her magic number.
I asked some other PF bloggers. Most of them have 12 months’ expenses saved up, but that isn’t necessarily their recommendation for others. The general consensus is, well, that it’s personal. Your optimal EF will depend on factors like job stability, risk tolerance, investment levels, and more.
Here are some specific points from them:
Mike from Oblivious Investor was fine with 6 months when he was an accountant. Now that he’s self-employed he wants 12 months’ expenses.
Ashley from Money Talks Coaching agreed that her 6-month account would need to double if she were self-employed.
J. Money started with 3 months’ expenses, but has moved to a full year’s expenses.
Lisa from Every Woman’s Money emphasized individual situations are what matters: debt size, financial commitments, your spouse’s job and/ormoney-making skills, family support, etc.
Andrea from Take a Smart Step keeps 12 months’ worth around. ” I prefer that my emergency fund has an emergency fund.”
Doug from Military Retirement & Financial Independence says servicemen and women don’t really worry about sudden layoffs. So they can have very small emergency funds.
Eric from NarrowBridge Finance started at 3, increased it to 6 and has now decided on a specific dollar amount.
Kelly from The Centsible Life keeps just one month’s expenses. The rest go toward debt. But, she points out, that’s only because they both work, and her husband’s job is very stable.
Emily from Live Like a Mensch says hers is $1,000. But they have various other savings accounts, which can act as an emergency fund in a pinch.
I was thinking of something similar in our situation, so this resonated with me. Granted, I want more than $1,000 — probably $3,000-5,000.
The main issue here is when you start diversifying from your emergency fund to other kinds of savings.
I do want a cushion, but I also want us to have a normal savings account for non-emergencies. I don’t want to spend a year or more building up a 12-month EF and then start saving for those double-pane windows.
What’s your ideal emergency fund? And how do you/would you balance an EF and a regular savings account?
Also, I couldn’t find a good place for this in the post, but I still wanted to cite the answer from Todd of Financial Mentor:
“The 3, 6, or 9 month rule only makes sense when your savings are below that number. Once you move beyond that number for your total savings you move from conventional personal finance rules to wealth building rules. In other words, the complication of keeping an emergency reserve separate from your growing liquid net worth ceases to make sense. It is more important to aggregate your funds and focus on investment strategy to enhance net worth.”
Food for thought.