What does your Emergency Fund look like?

Despite the fact that I’ve been saving money since someone trusted me with money as a wee one, I’m horrible about having an emergency fund.

This feels contrary to everything I’ve learned, but I just can’t seem to leave money alone. I’m excellent at creating savings accounts and funding them with a monthly debit. However, I am also excellent at finding reasons to drain any and all savings accounts in my possession.

With my current financial situation, I keep telling myself I need to being working toward having at least 3 months’ worth of expenses in a savings account for e-mer-gen-cies. At roughly $2500-$3000 per month, that’s a lot of cash to just be sitting idle in a savings account. At current interest rates, it’s easy to justify putting money elsewhere. In an effort to outwit my savings account centric brain, what kind of emergencies are we talking about?

1. Medical

If I go Kaboom right now, I have a $3000 deductible with a max out-of-pocket of $5500 on my insurance. If, like a dear friend of mine, I get sick on Christmas Eve and am in the hospital through New Year’s Day, that’s $11,000. That’s a serious emergency.

How will I pay for such an emergency? My HSA. I started it last year and maxed it out! My goal is to reach a minimum of 2 years of deductibles for both me and Hubs.

That’s $6000. Currently Saved: $4000.

2. Car Expenses

Both our cars are new Civics. Mine is 2012, his is a leased 2014 (I know, the shame). Instead of saving for the expenses of a beater, or replacement car, we are spending on new cars. My car will be paid for in 2.5 years and then we can figure out what to do with Hubs for transportation.

If there is a BOOM! Accident, my car insurance deductible is $500. As for maintenance, I’ll need to buy tires in the next year or two. I expect that to be roughly $500.

That’s $1000. I currently have $325 for Car Expenses. 

3. Housing Expenses

I rent. I have renter’s insurance. If the water heater breaks, I don’t have to pay for it. The only things I can foresee paying for would be the what ifs and intermediary expenses should the building burn down. I have a $500 deductible here.

This is our big unknown if we plan to move in 2 years. We will be on the hook for the water heater, or the roof, or the AC unit. I do plan to build it up over the next two years to prepare for the unknowns of homeownership.

4. Job Loss

This is a big one. If Hubs or I lost our job, that would put a major drain on our finances. Thankfully, we work in two completely different industries, so the chances of both of us losing our job at the same time is pretty slim.

Our incomes aren’t equal, but they aren’t horribly skewed either. Should one of us lose our jobs, the other’s income covers or nearly covers our monthly expenses. If the worst happens and we both lose our jobs, Hubs was kind enough to save money away from my sticky fingers.

Currently saved: $10,000

5. Other Considerations

Nearly all my family now lives within close proximity. If a family emergency arises and I have to be there, my biggest expense would be an extra tank of gas or two. I can’t even imagine a case where I’d need to get a hotel.

This wasn’t always the case. I used to have family in Hawaii. My cousin died unexpectedly a few years ago. His funeral was in Hawaii in March, during peak Spring Break Travel season. It was a tough decision not to go to the funeral, but thankfully, I was able to make the decision based on the non-financial factors. Not being able to go based on purely financial reasons would have been a heartbreaking pill to swallow.

We also don’t have any dependents, so at this point, we don’t have to worry about an unexpected vet bill or kid expenses.

What do the Experts Say?

The Personal Finance Experts have various things to say about emergency funds.

  • Dave Ramsey says: 3-6 months of expenses
  • Suze Orman says: 8 months of living expenses
  • An Unknown Source: The current unemployment rate in months of expenses.

Using the rough figure of $3000/month in expenses (shooting high!), the experts say I should have:

  • Dave Ramsey: $9,000-18,000
  • Suze Orman: $24,000
  • Unknown Source: $15,000 (based on 5% unemployment)

Based on everything outlined above, I’m comfortable with what we have saved. Thank Goodness, Hubs intervened and saved a few (thousand) dollars. If you add up all of our emergency funds together, we’re fully funded!

  • General Expenses: $10,000
  • Medical Expenses (HSA): $4,000
  • Car Expenses: $300
  • Total: $14,300

Have you calculated what your emergency fund should look like? Do you do anything more exciting than stash it in a Capital One 360 Savings account (referral link)?

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12 comments

  1. I’m all over the map on this stuff. I think in my ideal world I’m probably aiming for $10000 just sitting in a Capital One account (more likely, in a CD ladder, if interest rates EVER rise again) but right now I’m going to be content with $5000. My salary just isn’t that high and I have other things to save for (like a car and possibly house). I really want to stop putting $500 in that account every month, at least for a while.

    What’s with y’all and the leasing? You did that with your car too, right? Why not just buy the car new? Does it save you money somehow to lease for a few years?

    1. $5k is good. Especially because you are the queen of low expenses. If I were you, I’d stop at 5K and focus on the other stuff. When you get closer to buying a house, then I’d bump it up.

      And I know! Working on it. Post coming 😀

  2. I WISH that I had the recommended 3-6 months of expenses saved, but that will probably take me about 3 years to accomplish. Right now, I’m okay with at least having one paycheck’s worth of money in savings. I can’t wait until I can say, “I have a fully funded emergency fund!”; ahh, that’ll be a great day! 🙂

    1. Start with what you can and work up from there. It can help to go more granular, e.g. saving 1, then 2, then 3 month’s worth of rent. Then you know you’re covered. Build up from there. 🙂

  3. We wish we could do the HSA, but aren’t able to. Sigh. Spose that means we have good insurance, though, and we’re lucky? Anywho…

    For years we thought we needed a $40K emergency fund, which is laughably high thinking back. But we worked hard and did save that, and hung onto it for years, until we realized that — DUH — if emergency really struck, and we were both out of work, we would cut WAY back on everything, and wouldn’t need $5K a month for 8 months (evidently we listened to Suze on determining our needs). Of course, it’s not that we’ve now spent that money, but we’ve put most of it into better investments than some earn-nothing savings account.

    The big thing we’re trying to figure out now is how much of an emergency fund we need in early retirement. Obviously we have to build a big nest egg overall, but deciding what’s reasonable to set aside for true emergencies, and not to just cover from our annual withdrawals, is the tricky part. We are open to suggestions. 🙂

    Good job on fully funding your emergency needs! The good thing, too, is that many of the expenses you’ve mapped out can be paid over time. Unexpectedly large hospital bill? Negotiate it down, or ask for a payment plan. Fender bender? Believe it or not, you can even negotiate with the body shop on your deductible. We were once in an accident, and talked the shop into accepting $400 to cover our $500 deductible. Or they would have accepted it in two payments a month apart. So even true emergencies don’t always require the money all at once — not that that should be an excuse for bad planning!

    1. I would think you’d want a bigger Efund in early retirement as a buffer to stock market fluctuations. If 2008 happens 6 months after you retire, will you be okay?

      I’m intrigued by your deductible negotiations. Thankfully (knocks on all the wood), Hubs and I have been pretty lucky about expenses so we haven’t had to negotiate. One thing I struggle with is having the money and therefore not feeling the need to negotiate. When Hubs had a medical bill for $400, we just paid it because we had the money. We probably could have negotiated. 😦

      1. We’ll make a few shifts to cash as we get closer, but not much. We have ~30 percent in bonds to hedge against stock fluctuations, plus we *could* live on half of our ER budget. That’s always our backup plan — live cheaper! If the market crashes, we take out proportionally less.

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