Post # 1
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.
Post # 3
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.
Post # 4
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.
Post # 5
I have about 7 months of my after tax salary saved up. I would like to have a years worth.
Post # 6
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!
Post # 7
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.
Post # 8
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.
Post # 9
(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!)
Post # 10
We just bought a house and were told to have 5% of the cost of the house in the bank for an emergency.
Post # 11
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…
Post # 12
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.
Post # 13
Haha I feel so clueless after reading this post.. I need like a financial advisor or something!
Post # 14
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
Post # 15
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!
Post # 16
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.