How Much is Enough for an Emergency Fund?
Hello FOGA Readers!
Lately, I have been struggling with our emergency fund. Not with having one obviously. Emergency funds are great and incredibly helpful when life decides to say screw you. What I have been struggling with is the amount to put in.
We planned to get one year’s of expenses to put into our emergency fund. For us, that would be about $50,000 (rounding up a little). We wanted this amount because my job’s pay is highly irregular. I can make $15,000 one month and $0 for the next three. It’s not uncommon and has happened before — the joys of real estate.
Not to mention, that all it takes is a change in management for a previously safe job to become a toxic hellhole. Granted, this is partially me having a severe reaction to what happened to us after my last company underwent a “merger,” but the fear and anxiety are there nonetheless.
When you are the primary breadwinner for your family (I make about 75% of the income in our household), you tend to panic when someone can take that away because you don’t align with the new company culture.
With all that, having the $50,000 emergency fund makes sense, but I am starting to second guess myself. Not sure if it’s impatience or fear of missing out, but I am reconsidering it. So, I started looking into how much people typically put into an emergency fund, and that was an interesting process.
How Much Do People Recommend?
Once I started looking into this, I realized that the golden standard seems to be three to six months. Of course, there are exceptions to that.
You have this article that asks if a $1000 emergency fund is enough. While I can say that it is definitely not enough for us, they do go into detail on when and why you may need more.
Dave Ramsey and his team have been very vocal over the years about their Seven Baby Steps to take control of your finances. Steps 1 & 3 involve building your emergency fund to $1000 and then to 3-6 months, respectively. I may not care for the man, but his Baby Steps are on point.
Vanguard also has a page dedicated to how much should go into an emergency fund (three-six months again)and what type of expenses to factor in and what not to. I admit that I do factor in things that I probably would not be doing if I actually needed the emergency fund (ex. eating out and vacations), but that’s part of the buffer. I buffer the buffer.
Money under 30 also had a pretty handy calculator. It factors in how easy it would be for you to find another job. If you use the average, it will assume six months.
Still, even with all this I am conflicted.
Why Do I Want to Save Less All of a Sudden?
We are currently working on maxing out our IRAs, increasing amounts to our 401Ks, fully funding our emergency fund, paying an additional $3000 towards our mortgage this year, and investing $5000. That’s a lot going on.
I guess that I am getting impatient and frazzled. I am one of those people who prefers to do things one at a time in order. Build up a preliminary emergency fund, pay off our debt, build up the full emergency fund, and then start investing/paying off the house. Doing too many things at once makes them all take longer, and then I get impatient.
Plus, the more I think about it, the more I realize that a 50K emergency fund may not be necessary. Six months (or a little more) would be perfectly fine to get through most crises. We also have insurance for most things, a savings fund, and the IRAs we can pull from in a pinch. Not to mention that we do buffer our already buffered emergency fund.
The simple fact is there is no way to be 100% safe from every emergency. I don’t think there is a dollar amount, that we can achieve now, that would make me feel 100% comfortable.
In some ways, I feel like a dragon trying to hoard a bigger pile of gold for that just in case that we hope never comes. Meanwhile, Mr. FOGA is going to need a new car within the next year or so, and I’m going, “I’m not sure that’s in the budget, dear” while sitting on a pile of gold. It doesn’t make any sense.
Plus we lose time on investing as well, which doesn’t help.
What Would the New Amount Be?
I think that $30,000 should cover us in case of an emergency. It’s still over six months of expenses (which is probably closer to eight months if I take out all the fluff). This way, we still have a sizeable emergency fund, and we now can focus on savings for other things. 🙂
Once we max out our IRAs, we are going all in on getting to the big $30,000.
In Summation
Photo by Bruno do Val on Unsplash
So, that’s where we landed in regards to our emergency fund. Thank you for reading through this little rant/information dump. 🙂
Sometimes writing stuff out helps me think. I did not even have a solution to this when I started typing, so I would say that this was a resounding success.
What do you think is the right amount for an emergency fund? Share in the comments below. 🙂
Until next time!
-Ms. FOGA
I think you’re right. $50k is probably too high, but it is very much dependent on your situation. I think a reasonable calculation might be to look at the longest you’ve gone without income (from commission, I assume?) and then tack on 3 months of extra cushion.
We like having $10,000 back. That is 4-5 months’ expenses at the moment, but will be 5-6 once our mortgage is gone. In addition, we can cash flow a lot of potential issues so we may end up decreasing that to $6,000-$8,000.
We’re also very similar. We like to tackle our goals in a linear manner (pay off mortgage, rebuild emerg fund, roof fund, retirement savings).
Thanks for sharing.
Hiya CNC. That’s a cool way to think of it. The longest I have gone was four months and adding three would make that seven. $30,000k is pretty close. 🙂 Sounds like you guys have a good plan.
Thanks for reading!
We currently have $15k emergency fund, plus one month ahead of our budget, which puts us in the 4-6 month range. Also, if you are contributing to Roth IRA’s, your contributions (after a certain amount of time) can also be used as an emergency fund. Next year we will also be adding to our after-tax index funds, which provides another option.
It’s a very hard balance. I don’t want too much to make us complacent with our jobs and business, but I also don’t want to feel like we have to stick in a bad situation either.
I can relate with your feelings. I’m sick of feeling like we are always trying to play catch-up. Paying off debt, filling our emergency fund (which we did twice this year), and not feeling like we can focus on our net-worth. But the good thing about this is that hopefully, once you get your emergency fund, you won’t have to dip into it for a while. That’s at least our goal. I’m going to avoid pulling money out unless we encounter a really bad situation. In fact, I would be willing to go into debt for the short term to avoid dipping into that fund.
Keep up the good work though! Everything you are doing now is putting you in a very strong financial spot.
Hi Chris. Yeah, it is a hard balance. I’m thinking once we max out the IRAs, we’ll focus on the E-fund. Once that’s done, we can look at other stuff as well. Fingers crossed.
I will pull from the e-fund in an emergency, but if there is an option to take out a loan with 0% interest for a period of time, I would definitely consider that.
Thanks for reading!
My current savings account (EF) is 5 months, plus I keep a month in checking, and I’m a month ahead on pretty much all of my bills. The rest has been going into my brokerage account so that I can build it to a point where I can *eventually* get rid of the EF.
And the backup to my backup is past Roth IRA contributions. Those contributions can be withdrawn at any time, but the growth stays in the Roth to keep growing towards retirement.
I feel like, especially here in Florida and in real estate-related professions, we need robust pools of funds in case of a hurricane or another recession.
I think your 30k is good solution in your situation!
That’s awesome that you are a month ahead on your bills. I need to get an extra payment in on my mortgage again (lost it in the March dilemma).
My profession is a big part of having the E-Fund. While I don’t think we are headed towards a crash like 2008, I would rather be safe than sorry. Too much on the line.
Thanks for reading!
I go through this a lot! I am back and forth all the time on how much I should have in my e-fund, especially since I have debt and a very stable job. Then again, I often have big expenses come along that I kind of know about, and they need to be planned for, so then my e-fund goal changes because I use that money to cover the expenses. It’s a roller coaster of emotions sometimes.
It’s good to rant and write through it sometimes! These are my fave posts because I write similar rants/thought processes too. Glad we’re all in this together. I think you’ve come to a good decision that works for you!
Hi Liz! We have gone through that as well. We’re going to end up making a separate e-fund for the house (where most of our surprise expenses can come from) at some point. Enough to cover a new roo at least. Never know. lol
Thanks for reading!
I’m probably going to stop once I have my EF up to $10,000. I’ll know more for sure when I get my spending better figured out (finally tracking it now to see how much outlay I have in a given month). But $10,000 should be between 3-5 months’ worth of average expenses. Plus I’ll have my savings account.
Sounds like you have a plan. 🙂
Thanks for reading!
Love it! Our e-fund is ALMOST at 10K, which is four months of bare boned living expenses, and then we’re transitioning our energy to saving for a down payment. I think once we buy a house, we’ll probably up our e-fund to $30k (the extra buffer also serves as a pet emergency fund), and also create a separate emergency fund for the house.
Yay for the almost 10K. 🙂 How much are you thinking to save up for a down payment?
A separate E-fun for the house is not a bad idea. We’re thinking enough to cover a new roof (aka: the worst-case scenario).
Thanks for reading!
I think you’ve picked a very respectable number and I love how you are still prioritizing the IRAs. We are saving up for a roof right now (in our emergency fund) so things are out of whack for us! We’ll make it smaller once we have some key house repairs taken care of…
Hi Savvy History! Thanks! The IRAs are always the first priority for us in the year. Once we max out, we move to something else. Plus, they can act as E-fund part 2. 🙂
Good luck on saving up for the roof. We are planning on making a second e-fund for the house at some point and putting in enough to cover for a new roof (that’s always my worst-case scenario for a house for some reason).
Thanks for reading!
I can definitely relate, it also helps me to write stuff out in order to get my own thoughts clear 🙂 I often feel like I’m really writing my blog for myself. If someone else reads it and finds it helpful, great, but that’s basically a bonus 😀
I also relate to being unsure of how large the emergency fund should be. Not an easy question. I worked through it rationally and came up with a number, but going down to that number is starting to feel painful. I do think there is a big emotional component to this topic too.
I am pretty much still the same on that. I have gotten more fluid and less structured with the blog over time so it probably sounds even more like this now. lol
There is definitely an emotional component. There’s also your history with money. Were you poor before? Did you go hungry? Did you ever worry about where you would live? All that factors into where you feel comfortable in your Emergency fund. I have shifted since this post. I have $25,000 in the E-fund, but I also have $10,000 in the House E-fund and another $2500 that is in an easy-access savings account. Just in case. Apparently, I’m rather risk-averse. lol
Thanks for reading.