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I think there is some disagreement about this... some people say 3 months, some people say 8 months. What I do is figure out the "bare bones" of how much it would cost us to live (assuming we both somehow got fired at the same time I'm guessing we'd probably cancel our cable and start cooking in!), and try to have at least 3 months of that. I'd love to have more, but it isn't that realistic right now.
The 3 months makes me feel comfortable though because the liklihood of us both becoming unemployed at the same time seems remote. I feel like this way if one or the other of us lost our jobs, we'd probably have closer to 6 months of savings.
Suze Orman says at least 8 months' worth of expenses. You want at least as much in your savings to cover a full 8 months of living exactly as you do now.
I have about 7 months of my after tax salary saved up. I would like to have a years worth.
We have one years' after-tax salary saved in our emergency fund. It stays in a high-yield savings/money market account.
Think about it this way:
In a worst case scenario - say, you both lose your jobs in the same year, or one of you falls ill and can't work/disability doesn't cover lost wages or isn't a possibility - how much money would you need to sustain your lifestyle (or, a scaled-back lifestyle but still covering bills and committments)?
That's why we have a year's savings on hand. We also contribute 10% each to our retirement plans, and each of our companies match another 6%. Plus we are constantly adding to our savings towards goals - we are taking a 6 month trip through Asia this year, and moving, and saving for a house.
Basically, we work very hard to live well, well below our means to make sure that we are in a good financial position!
Absolue barebones living expenses for us is $5,000 but we probably spend about $6,500 so we are aming for so we are aming for at least $50,000 which would give us 6 months of comfortable spending and a little cushion for emergencies. This is our goal before TTC and we want to start in about 7-8 months.
I think before you decide to save in the emergency fund, you should consider if you are passing up "free money" from employer matching into a retirement savings account. And I agree with @ohheavenlyday - when in doubt about financial questions, consult Suze Orman.
(also, I forgot to add - I think you should be contributing to both your emergency fund and retirement savings at the same time. Your retirement fund really benefits from investing as early in your life as possible. And right now (actually, a year and a half ago) was a really excellent time to get back into the investment market for retirement. We've made a lot of profit - definitely consider contributing as least some money to retirement this year!)
We just bought a house and were told to have 5% of the cost of the house in the bank for an emergency.
FI and I haven't combined finances yet, but I have about 5 months after tax salary saved up and he has about 8 months of his after tax salary. (He's been working longer and has less debt than me, so I'm still working toward that 8 month goal!)
After that, I hope to start a retirement fund. I have good benefits with my current company, but unfortunately they don't offer anything toward retirement, so I'm on my own for that one...
The size of your emergency fund depends on how big of a safety net you are comfortable with and what your current expenses are. Most financial professionals advise a minimum of 6 months of living expenses in a savings account. Many are suggesting your emergency fund should be larger (8 or 12 months worth of expenses) because of the economy.
If one of your vehicles is on its last legs, you should create a separate savings account for this.
As far as contributing to retirement accounts, you should be doing this too. According to financial experts, you should contribute to an emergency fund first, then retirement accounts, then save for other things (like a car). BUT, if your employer offers a 401k and they match your contributions up to a certain point, you should make sure you contribute at least that much to your 401k (so you aren't losing out on your company's match).
Until you are pregnant, you probably don't need to include baby related expenses in your emergency fund, but its always better to over save than under save, so use your best judgement on that.
Haha I feel so clueless after reading this post.. I need like a financial advisor or something!
Right now, we have 3 months of living expenses in our emergency fund, but are working towards having 12 months saved up. By that's a strictly EMERGENCY fund. We also have a car emergency fund set up, so if anything big goes out (transmission, cluch, etc) we have the funds ready. To dip into our big Efund, would have to be a true emergency and is not to be touched under any circumstances, unless we are two steps away from being starving and homeless. lol
My husband and I are huge Dave Ramsey fans. He's changed our lives! He suggests putting 3-6 months in your emergency fund. This would include all your necessities that you would need should one or both of you lose your income. For us that would be about $15k which we are just now starting to put away. With his plan you don't contribute to your retirement until this money is saved up - the thinking behind that is if something were to happen and you only have $2k in your savings you would be hurting pretty bad. Put everything you can into that fund until it is set up and THEN start investing into your retirement. His plan is amazing and has helped us with our money SO much. We never fight about money - it's AWESOME!
We're shooting for 6 months. Right now we're at about 3 or 4 months. Takes a while, but when we have it, heaven forbid something happens, we'll be a-ok.
I'm with KitKatNYC - we look to Suze Orman for advice. She recommends always, always, always contribute to your retirement first if you get a company match. It's free money, so you don't want to pass that up. If you don't get a company match, she recommends the Roth IRA route. At that point, I'd probably split contributions between Roth IRA and emergency savings, but I don't know the "official" Suze word on that one. ;)
After doing that, I'd put as much in savings as you can, with the goal of 6-8 months of expenses. She recommends 8, but I've heard lots of others (like Dave Ramsay) say 3-6, so I'd guess 6-8 is a safe bet.
Good luck! And good for you guys for taking this on together! :)
@Texacali: Yes, and the more you invest now, the more its worth later.
"Consider this: if you started contributing to $100 a month to your retirement account at the age of 25, and you were going to retire at the age of 60, then your account would reach $379,000. If you started saving for retirement at theage of 35 with the same contribution, then you would have just $132,000."
http://www.moneycrashers.com/should-you-save-for-retirement-at-a-young-age/
We have savings to cover more than a year (bare bones living expenses). But we've also contributed decently to our retirement accounts while we've built up those savings. Since you mentioned a mortgage, I assume you own a home. If you don't already, consider getting a home equity line of credit. It just widens your safety net, and they generally have low interest rates. Not everyone sees it this way, but we usually pull $ from that for major expenses rather than raiding our savings to pay cash.
Also keep in mind that if the emergency is losing a job, you will most likely be collecting UI benefits, which can often be enough to cover essential bills.
But bottom line: If you can reasonably afford to do it, I don't think 15k is excessive savings for a married couple with a house and 2 vehicles.
DH and I are big savers while we still can bc we have zero debt besides our mortgage and own both our cars outright. We currently have 12 mths total living expenses as with no cut backs in savings right now and still do our plan contribution towards that fund as well as our retirement funds. We both also contribute the max company match for our retirement funds as well as have Roth IRAs through our bank. We also pay on our house more to have it fully paid in 10 years instead of 30, so when it is paid off most of that money will go to our retirement accts. I also keep a emergency fund padding in our checking of $1000 for the just in case things like new tires or ER visit etc bc our savings is not touched unless it is an extreme emergency. This is all part of our budget as of today but I am sure this will change some when kiddos enter the picture.
We have about 6 months expenses saved up for emergencies. To me this is: death in the family, emergency travel, emergency health care, emergency car trouble (not an issue we got a new scion on tuesday!!!!). We have more in other accounts set for goals like house, car, kids. We contribute about 8% to our retirements but neither of our companies match contributions (yet - in 2 more years they would, expect we're moving so boo). We'd like to save a lot for a downpayment towards a house - like 50% if we could. After DH finishes grad school in 2013 he'll double his income so we can finally pay off student loans and TTC. We're both savers but will have to cut back once he's in grad school in August since we'll live off my income and some more student loan $$. I'm nervous for taking on more student loans but I know nurse anesthesia is worth it and he got in to the #1 program in the country.
DH and I set a goal of $xx amt in our 'big savings'. We reached that goal at the end of 2010. That amount is enough for 6 months of bare bones living expenses while paying off student loans, and 10 months bare bones living expenses without student loans, all of which will be paid off by the end of 2013 if not sooner.
Both of us are working right now but we are living off of my salary alone (minus a small amount to savings each check). His salary is split between student loanss, savings, and some work related expenses his has each month. We have gotten accustomed to this method so that when we move, if I don't find a job right away, we already know how to live within our budget (we make about the same right now) and when I do find a job, my earnings can go to savings.
In my opinion $15k is not a lot of money in savings, especially if you feel like you would use that for a car at some point. Although, given I don;t know what prices are like in your area, that might be 6-8 months expenses!
I agree with previous posters that you should have at least 6 months expenses saved. I also agree that you should start a second savings for more 'routine' expenses, such as a new car or a new transmission, or other surprise costs. I also VERY firmly believe you should also be contributing to an IRA or 401k or SOMETHING for retirement planning no matter how much you have in savings. Also, as another poster mentioned, keep that savings SACRED. Do not touch it no matter how tempting it is, unless of course you are both unemployed and have $0 in your checking.
Thanks for the answers, ladies! We'll plan to save 6 months living expenses plus $6K for a car in an emergency fund. We'll start to contribute to our IRAs again once we hit 3k in our emergency fund, or my summer break, whichever comes first. I feel like I need some time to look over our IRAs and review them, and I might not have that until school is over (I'm a teacher). I know that he doesn't have company match, and I might, but I think I have to sign up for it at the beginning of the year, so I'll sign up for it next year. Maybe once we meet those goals, and are regularly contributing the yearly maximum to the IRAs, then we could increase the emergency fund amount to a full year's living expenses. It's great to see all of your great plans for the future!
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DH and I are building up some savings--yay! The thing is that I'm not sure how much we need in an emergency fund. I want to have a certain amount in an emergency fund before I start investing again in my IRA or other retirement-type investments. I tend to be pretty cautious financially. But at the same time I don't want to neglect our retirement savings for too long.
Here are some specifics:
How many months' rent/mortgage do you think you should keep in savings? Should that include living expenses? Should that be "bare-bones" living expenses or living-as-we-do-now living expenses?
If we're afraid one of our vehicles is on its last legs, should we include the price of a decent used car in our emergency fund? I'm thinking about $6000-8000. We would drive the car until it dies whether or not we have these savings, and we prefer not to take a car loan. Having only one car would be a huge inconvenience in our city and with our schedules. Clearing out our emergency fund entirely for a car would make me nervous, but if we had several months mortgage plus living expenses, plus the price of a car in savings, that would add up to well over $15,000 which feels a bit excessive. Or maybe I'm reckoning that number with my brain that's used to looking at a single person's expenses and not a couple's.
We're going to wait at least another year before trying to concieve a child, but maybe we should add baby things in our savings plan?
Is there anything else we should consider in making our emergency fund? Is there a number that when we hit it we should start contributing to retirement savings? Or are we wrong to not be contributing to that already? We do have some money in IRAs already, just not much (the stock market dip didn't help), and we haven't added to them in over 2 years.
Thank you financial wizards of the hive! I hope that this discussion is useful for others as well.