How do you calculate the "ideal" amount for your emergency fund? - Page 2

[its_betty]

Originally Posted by taubel 
Would it be OK if we dipped into this money when necessary - like say for a new roof, or if our sewer line needs to be replaced, etc.? (We would of course try to re-build the fund after paying out for this type of expense, but it would take us YEARS). 

Of course it would be OK to use money you've saved for emergency expenses. (Better than debt!) It would be way better to have another savings fund for big expenses such as a new roof or sewer line. Think about all the possible big expenses you'll have--will the roof need to be replaced in a year? in 5 years? Start saving towards those expenses.

Why not just use the emergency fund? Because you worked hard to save it up so you would be secure if your dh lost his job. What if he loses his job and the roof needs to be replaced at the same time?

[Carson]

Taubell, of course it is up to you what constitutes an emergency.  I have an old house and it's hard to figure out what is on the horizon in terms of needed repairs.  But some things are predictable, eg, new roof, siding, masonry repairs, etc...  I personally feel better actively saving for those things in a sinking fund.  Because really once one of those repairs is complete, there's usually something else to save for.

Now, situations where lines burst and crazy things happen, for me, IMO, that's more an emergency for me, and I would use the EF for that.

I am also very financially conservative, and I feel like with job loss, we'd be okay with income replacement for awhile, but unfortunately stuff seems to pile on, and that's where things get dicey.  Eg, you are our of work and then your car needs major repairs, or you need a new roof, or an appendectomy.  I know we can't prepare for every set of bad luck/occurence, but it also seems that you can't really save too much, KWIM?

[mnnice]

It maybe seems like a huge amount, but it has sure been my life experience that when you have it you are less likely to need it. 

In 2009-2010 DH was unemployed for 18 months.  Having a large cushion made it much less stressful and easier to focus on "radical homemaking" activities that keep money from exiting our accounts.  Had we been broke we would have been pushed to move to a new location and take the best paying job DH could find despite the fact that it may not have been the best for our family all around.  DH and DS2 still refer to this period of having an accidental SAHD as the "good old days"  Incidentally, because we where healthy, DH has some severance and was illigible for unemployement and we were so super cheap we ended up with more money in the bank than when we started.

[heatherdeg]

I agree: it literally pains me not to be investing a sum of money like that; but I also worry about not having it if dh lost his job more than it pains me.

I think what you touch it for really depends on your comfort level with your job situations, having less available if that does fall apart, how quickly you can replenish the money, etc.

We, too, have separate accounts for big purchases (right now, it's vehicles).

[texmati]

I agree with you, op, 3-6 months or a little more if you are a single income family.

[EmsMom]

I was thinking that all of these rule of thumb measurements of a desirable emergency fund are a bit of nonsense.   It seems as if a better way would be to figure out what an emergency could possibly entail for you and your family.  If there is good insurance available, that would cover a multitude of possible emergencies: car accident, health related emergency, disability, many home emergencies, even a death would be covered by various insurance policies if you have them.  But how long would any of those policies take to kick in?  Probably take a while, so a few months worth of income would be desirable.  And what of deductibles?  Ideally, you will want to cover them without going into debt.  What about loss of a job?  Well, sometimes we can get unemployment insurance coverage and sometimes we can't.  Know your eligibility status.  Add some more savings based on your risk of obtaining such coverage and the odds of finding a job within 6 months, 1 year, 2 years, etc.  What if you are a homeowner?  A homeowner could easily find themselves in a predicament of needing an expensive and critical repair (new furnace, roof, etc.)  So wouldn't a homeowner need a much larger emergency fund than a renter?  And a car owner more of one than a non-owner?  And if you have far flung family members all over the country that you would need to visit in case of an emergency?   If you are past 50, your risk of health conditions goes up, so by that time, a higher emergency fund would be great. 

[mnnice]

Originally Posted by EmsMom 

I was thinking that all of these rule of thumb measurements of a desirable emergency fund are a bit of nonsense.   It seems as if a better way would be to figure out what an emergency could possibly entail for you and your family.  If there is good insurance available, that would cover a multitude of possible emergencies: car accident, health related emergency, disability, many home emergencies, even a death would be covered by various insurance policies if you have them.  But how long would any of those policies take to kick in?  Probably take a while, so a few months worth of income would be desirable.  And what of deductibles?  Ideally, you will want to cover them without going into debt.  What about loss of a job?  Well, sometimes we can get unemployment insurance coverage and sometimes we can't.  Know your eligibility status.  Add some more savings based on your risk of obtaining such coverage and the odds of finding a job within 6 months, 1 year, 2 years, etc.  What if you are a homeowner?  A homeowner could easily find themselves in a predicament of needing an expensive and critical repair (new furnace, roof, etc.)  So wouldn't a homeowner need a much larger emergency fund than a renter?  And a car owner more of one than a non-owner?  And if you have far flung family members all over the country that you would need to visit in case of an emergency?   If you are past 50, your risk of health conditions goes up, so by that time, a higher emergency fund would be great. 

I piggy back on this a little by saying that a good emergency fund is self-insurance for many of the thing mentioned and it often more flexible.  I could use the money in my current emergency fund to by a different car if my current car died.  It doesn't matter if is was caused by something insurance could cover (hitting a deer) or the engine blowing up.  Because of this I am seriously considering dropping the comp and collision on my car (not something I would risk if I had no cash saved).   DH and I are becoming increasingly self-insured for life since either of our jobs plus social security survivor benefits would be about the same as our current income and we would incur very few additional expenses if one of us were to died since our kids are school aged and enrolled in public school (and we have no debt either).  We do have some term life insurance, but I am not sure how much longer it make sense to continue to pay those premiums.