Do you have an Emergency Fund?

[Dreamer_D]

Interesting to read everyone's thoughts. Seems many people believe in the e-fund...anyone against it?

It kind of feels like we're burning a hole with it since it sits and it could pay off half of one of my student loans. At the same token, having it liquid and paying the interest on the loan is probably worth the security if an emergency did come up. Like others mentioned as per their situation, we don't have kids, we're young, and have secure jobs. Those factors matter, but how much?

I'm not against emergency funds, but I don't think it makes sense to keep 6-8 months worth of living expenses in savings if you have debt. If I were in your shoes I'd probably pay off half the loan with the savings and keep maybe 2 months worth of living expenses. (Of course this all depends on whether or not you have a secure job.)

As for us, we have probably 2-3 months worth of living expenses in savings right now. We just moved and were paying our mortgage and rent for three months, plus double utility bills, so that helped lower the amount! We do have stocks that we could sell if necessary. However, my husband's job is very secure and when I start my job (just accepted an offer today!) it will be very secure, too.

Plus honestly, if we were really broke, I know my parents would help us out. I don't get any money from them and haven't for years, but if there was an emergency I know I've got the bank of Mom and Dad as a back up.

I agree with Thing--I would pay off some loans if I were in your shoes. I'd probably save up a small fun of a few thousand dollars and then put the rest toward loans. I'm really uncomfortable carrying debt of any kind though, so I know some people have good reasons for NOT paying off all their debt right away.

We have an emergency fund of about six months, maybe a bit more. We put down a lot of money on our house so that dried up our funds for a bit, but we've slowly built them back up.

I agree with Thing and Haven, pay off the debt. Another reason to do it now is that once you have kids, depending on where you live and the expense of daycare etc, it will eat about $1500 per month, or more. We are looking down the barrel of $2000 per month on daycare alone once kiddo number two starts daycare in 12 months. There goes your disposable income! Freeing up the monthly cashflow could be so much more important than having the savings, once you add that extra cost of kids. ETA: This is why we are presently frocusing on blitzing our debt in half the time of the loan term. Although we could pay it off slower and put a very tidy chunk in savings each month, in a year we frankly need the extra $500 per month (amount of the payment) for monthly expenses when we have two kids in daycare.

 

[megumic]

Since all of you gave this advice and I've been thinking about it, DH and I have been talking about using some of our e-fund for the loans. It all makes sense, but I can't help but to hear Suze in my ear about 6-8 months of an e-fund.

I feel fortunate that we can even be making this decision, as I know many of my colleagues who will graduate with me in two days have zero savings, no job and 6 digits in loans.

In any event, thanks for everyone's two cents on the e-fund. I'm getting old and boring with all my financial chatter these days!

ETA - I'm actually impressed and amazed that 38% of voters have 6-8 months of an e-fund saved up! I actually expected the rate to be more around the 20%. However, perhaps those w/o e-funds or smaller e-funds are less inclined to vote? Maybe it's b/c this is a diamond site and we save up for sparklies?? LOL.

 

[ksinger]

About 2 years worth.

 

[wannaBMrsH]

We have at least one year of expenses in savings, and that doesn't include our kids college accounts. The fourteen year old's account is two years away from being fully funded for private school/out of school tuition funded. The ten year old is about 6 years away from being completely funded as well. DH just paid off his car and mine's been paid off for about 4 years.

In addition, DH has a five year plan in case he loses his job that includes us selling the house if he can't get a job in two years. We just paid off the last of our school loans in the last year, so really the big thing for us is our mortgage. But we are good at least for one year without either of us working...

 

[Dreamer_D]

ETA - I'm actually impressed and amazed that 38% of voters have 6-8 months of an e-fund saved up! I actually expected the rate to be more around the 20%. However, perhaps those w/o e-funds or smaller e-funds are less inclined to vote? Maybe it's b/c this is a diamond site and we save up for sparklies?? LOL.

Sampling bias my friend. If we polled the SES of the average PSer it would also be much much higher than average, and income is undoubtedly related to one's ability to save (more money = more disposable income). I also suspect age or family situation matters too. Being single or a couple with no kids where both people work also makes for more disposable income, especially when combined with high SES to start, as does being older with no more kids to support. Anyways, these numbers do not surprise me for PS, which seems to be a pretty fiscally responsibile, and flush, bunch. Not surprising since the shared hobby is VERY expensive baubles!

 

[Dreamer_D]

I am also curious about how cost of living in one's region and average salaries in one's region relate to savings? For example, if we earned what we currently earn and lived in another city in the country with lower housing and daycare costs (like some of my lucky bum friends ), our monthly disposable income would be about $1000 higher than it is now, living in such an expensive city. Presumably, in that case, it would change our financial situation a lot.

These types of things are why I can't help but think that the advice of professional money advisors, who are trying to make rules to apply to the masses, are too simplistic. 6-8 months of expenses for one family would be a savings account of $12k, and for another family in a town with higher cost of living and more expenses, it would be $70k! Yes, the latter family likely earns more than the former, but that does not mean they have proportionately that much more disposable income if they live in a high cost city (which is likely since salaries and cost of living do tend to correlate). That is also a lot of money to have in liquid form sitting around, especially if you have a really huge mortgage -- because you live in said high cost city -- that could be paid down and save you much more money that you earn in interest on the e-fund... just blabbing here, but these thoughts go through my mind when I hear the 6-8 months rule.

Anyways, I sure don't know much about this stuff, but I sort of wonder if money advice for the masses is like all the other self-help advice that is out there - sounds so easy, so compelling, and everyone knows someone who succeeded tremendously following the guidelines of the guru of the moment -- but of course, if it was all really so simple the self-help industry would completely dry up, wouldn't it?

 

[rosetta]

I live in London. No doubt I would save more living elsewhere in the country.

FI and I have monthly expenses of £5,000 without that many luxuries.

 

[Hera]

My husband and I have about two months of an emergency fund. I send quite a bit of money out to have my credit card debt from college to pay it off in 3 years. My husband is in the military so I would consider that pretty stable so I don't worry too much. We also live solely on his income and my income is more fun money and money I put into my start up business. We also live in a very expensive area and have an expensive mortgage which makes it even more difficult to save. Such is life in Southern California.

 

[Pandora II]

We live in London.

Fortunately my husband has always believed in having at least a year's worth of expenses saved up - and he is a mega-saver even when not on a high income.

He's currently been out of work for 8 months - although has had some good short-term contracts come in from now and then which have meant we haven't used up 8 months work of savings - so it has been amazing in reducing the stress we would otherwise be under.

As soon as he gets another permanent position we will be saving the extra back up again. He's at a pretty high director level and has come 2nd in the last 5 interview processes - each one had at least 4 rounds so it has been a yo-yo nightmare for months of hope and disappointment. We're currently at final stage for the 6th time this year and should hear in the next 10 days - the wait is killing me...

 

[Fly Girl]

Yes, we have an emergency fund. We have always lived beneath our income and saved. Over the past two years I have been out of work, and we have been able to complete our daughter's college education thanks to savings. Now, I am going back to work in a couple of weeks, so we can build up our savings again. Savings have allowed us to weather this recession without having to drastically adjust our standard of living. As I told my kids, you don't see a lot of difference between savers and non-savers during the good times; it's during the bad times that the difference is apparent.

Pandora - Best of luck to your DH in his job hunt.

 

[megumic]

ETA - I'm actually impressed and amazed that 38% of voters have 6-8 months of an e-fund saved up! I actually expected the rate to be more around the 20%. However, perhaps those w/o e-funds or smaller e-funds are less inclined to vote? Maybe it's b/c this is a diamond site and we save up for sparklies?? LOL.

Sampling bias my friend. If we polled the SES of the average PSer it would also be much much higher than average, and income is undoubtedly related to one's ability to save (more money = more disposable income). I also suspect age or family situation matters too. Being single or a couple with no kids where both people work also makes for more disposable income, especially when combined with high SES to start, as does being older with no more kids to support. Anyways, these numbers do not surprise me for PS, which seems to be a pretty fiscally responsibile, and flush, bunch. Not surprising since the shared hobby is VERY expensive baubles!

So true! I wonder what it would look like across the nation though...

 

[megumic]

I am also curious about how cost of living in one's region and average salaries in one's region relate to savings? For example, if we earned what we currently earn and lived in another city in the country with lower housing and daycare costs (like some of my lucky bum friends ), our monthly disposable income would be about $1000 higher than it is now, living in such an expensive city. Presumably, in that case, it would change our financial situation a lot.

These types of things are why I can't help but think that the advice of professional money advisors, who are trying to make rules to apply to the masses, are too simplistic. 6-8 months of expenses for one family would be a savings account of $12k, and for another family in a town with higher cost of living and more expenses, it would be $70k! Yes, the latter family likely earns more than the former, but that does not mean they have proportionately that much more disposable income if they live in a high cost city (which is likely since salaries and cost of living do tend to correlate). That is also a lot of money to have in liquid form sitting around, especially if you have a really huge mortgage -- because you live in said high cost city -- that could be paid down and save you much more money that you earn in interest on the e-fund... just blabbing here, but these thoughts go through my mind when I hear the 6-8 months rule.

Anyways, I sure don't know much about this stuff, but I sort of wonder if money advice for the masses is like all the other self-help advice that is out there - sounds so easy, so compelling, and everyone knows someone who succeeded tremendously following the guidelines of the guru of the moment -- but of course, if it was all really so simple the self-help industry would completely dry up, wouldn't it?

THIS. This is what I'm talking about! (Well said DD) 6-8 months of expenses for us is about $24k (I'm being conservative here, as all financial advisors would have me be in this situation). We are about to be DINK (double income no kids) and I just don't see the purpose of all that cash in the bank while we've got the debt hanging around. While in perspective it's not a whole lot of money, when I think about the damage we could do to my loans with that and the interest savings, it becomes more apparent that having it sit and earn 0.85%, might not be worth the security since we're not at great risk.

I digress...I promise to shut up about finances one of these days (probably the day I get pregnant, then I'll be blabbering about that forever!)

 

[Dreamer_D]

These types of things are why I can't help but think that the advice of professional money advisors, who are trying to make rules to apply to the masses, are too simplistic. 6-8 months of expenses for one family would be a savings account of $12k, and for another family in a town with higher cost of living and more expenses, it would be $70k! Yes, the latter family likely earns more than the former, but that does not mean they have proportionately that much more disposable income if they live in a high cost city (which is likely since salaries and cost of living do tend to correlate). That is also a lot of money to have in liquid form sitting around, especially if you have a really huge mortgage -- because you live in said high cost city -- that could be paid down and save you much more money that you earn in interest on the e-fund... just blabbing here, but these thoughts go through my mind when I hear the 6-8 months rule.

THIS. This is what I'm talking about! (Well said DD) 6-8 months of expenses for us is about $24k (I'm being conservative here, as all financial advisors would have me be in this situation). We are about to be DINK (double income no kids) and I just don't see the purpose of all that cash in the bank while we've got the debt hanging around. While in perspective it's not a whole lot of money, when I think about the damage we could do to my loans with that and the interest savings, it becomes more apparent that having it sit and earn 0.85%, might not be worth the security since we're not at great risk.

I digress...I promise to shut up about finances one of these days (probably the day I get pregnant, then I'll be blabbering about that forever!)

It is your thread, I don`t see how there is a digression But then I am fueling it...

I am not expert in this at all, but I think about it a lot as I manage our finances -- I don't manage it as well as I would like (sometimes it seems money evaporates), but I keep really good track of what we spend and what we pay off in debt each month etc, and have spreadsheets projecting our finances into the future so I can track our goals. We have only been a truly two income family for about 18 months, and have owned our home for 20 months, so I am new at trying to really manage the vast array of expenses that accompany kids and home ownership. I grew up very poor and trying to manage a houshold on $10k per year is pretty different than what I am doing now! I am not complaining, that would be ridiculous, but it is a big job and one that I often get a little confused about, and I am good with numbers. I can honestly see how people end up in monstrous consumer debt, because if you are not able to really keep track of things due to lack of skills or knowledge, it could easily get away from you. Anyways, my point is that I think it is good for you to ponder these things, since when you buy a home and have kids, managing finances gets more and more complex and it is really good to have a plan, I think.

 

[TooPatient]

Not one cent. We tried. Over and over. I had a nice savings built up before we got married. Crap happens and I think Murphy spent a good couple years knocking on our door every time we got ahead the slightest bit. After a while it was like..feck it.

Something like this --- I love how you put it Packrat!


Part of our current money crunch is due to my tuition. We've now paid for 7 quarters of college in cash (no grants or loans) -- luckily it isn't a "expensive" school, but it is still a big expense for us. In another month, I'll be able to qualify for a loan but FI and I both prefer to continue paying in cash as much as possible to avoid building up debt.

 

[swingirl]

Yes, I consider a chunk of money we have as an "emergency fund" but it is not sitting in the bank collecting interest. It is invested, but still easy to get at. Even 401k's and IRA's can be tapped in an emergency.

Personally I'd rather pay off debts and then save for the emergency. The debts are here today, the emergency is a gamble.

 

[charbie]

We don't have an "emergency fund"- we have savings. A nice big chunk of it is about to go to the dp on our new home as well as set up costs (new appliances/furniture) and we will drop back down to about 4-6 months of savings should one of us be jobless. I still have school loans, so DH and I set a certain amount we are comfortable with as our 'savings' and anytime we find ourselves with more than that in our bank account, we put more towards a debt (right now that's my school loans). We are tackling one at a time, and should be debt free besides a mortgage in 5ish years. My advice is figure out what your minimal comfort is, then do your best to never dip below that.

 

[Lulie]

I'm sure most of 48% voters are parents, kids get even more expensive as they grow. Daycare/after school savings of 2,100 went straigt to the children's college fund. I still do some consultations time to time and that is the only money I want spend on me.

 

[DivaDiamond007]

Not one cent. We tried. Over and over. I had a nice savings built up before we got married. Crap happens and I think Murphy spent a good couple years knocking on our door every time we got ahead the slightest bit. After a while it was like..feck it.

This. Every time we get some money saved Murphy shows up and POOF! It's gone. We also have some debt - mostly medical bills from my daughter's birth - to pay off before I feel like we can really begin saving money.

 

[Lulie]

I'm sure most of 48% voters are parents, kids get even more expensive as they grow. Daycare/after school savings of 2,100 went straigt to the children's college fund. I still do some consultations time to time and that is the only money I want spend on me.

Gosh, half of my post got eaten lol.....the savings I was referring to: We lived on DH's income for years so we could pay debt and I could retire early. I think is a good idea to pay off your debt before you start a family

 

[zoebartlett]

We've followed Dave Ramsay's Debt Snowball plan and it's worked really well. We've tweaked it a bit though, which I think is pretty common to do. We have money in savings, but it's not the recommended level that Ramsay (or Orman or other financial gurus) think is best. I'm okay with that for now. One sticking point between my husband and me is our school loans. To me, debt is debt, and I want to get rid of it ASAP. My husband wants to finish up a few things first, then buy a house (this is still years down the road), and THEN pay off our loans. I don't like that idea at all, so we're kind of at a standstill. We're not at that point yet, so I guess we have some time to figure it out.