Reader Poll: How Large Is Your Emergency Fund?

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Unless you have unlimited ATM access to the Bank of Mom and Dad, most of us keep some money around for the unexpected. I haven’t been worrying about this much, as we have over $80,000 in cash split between our savings accounts at Washington Mutual (5% APY) and FNBO Direct (0.85% APY). (See bank reviews and more here.) Although this is for a mortgage down payment, technically all of it could be tapped if needed.

But, if we do buy a place, we’ll need to decide exactly how much we want to keep in cash. Instead of absolute numbers, I like measuring it in terms of “months of basic expenses”. This expense total will be different for everyone, but it is essentially what you would spend if you had no income anymore. For most people, they would still need to pay things like rent, utilities, and insurance. But maybe they would spend less on dining out, travel, or entertainment.

You can help us decide by sharing your own situation. Just divide your current Emergency Fund balance by your Basic Expenses, and vote below. One is for what you actually have saved, and one is what you think you should have saved. You can view the results right after voting.


If you’re curious, you can also check out the results of the last poll: Do You Have A Speculation Portion Of Your Portfolio?

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  1. says

    I think it all comes down to what people are comfortable with. For us personally, we don’t have an “emergency fund” per se, but we have a line of credit and a fairly large savings account (~$35,000) + non-retirement portfolio of $47,000. Like you though, the savings account though isn’t primarily for an emergency though, we are saving it for a down payment for our upcoming home.

  2. Wonder what the results would be if you broke out the 3-6 category. That is a large range and I suspect that most people mean 3 rather than 6

  3. I’m voting 3-6 months but a lot of that has to do with what type of profession you are in. As a math teacher my job is pretty secure and if I were to lose it I could easily find a new one. If you job is in a less stable field you might want to have more.

    I like your point about it doesn’t have to be a fund to cover your normal budget but just the things you couldn’t live without (electricity, water etc.)

  4. Ted Valentine says

    Mine is 5 months in cash, mostly in Vanguard Prime MM and that’s what I voted. However, I also have access to a HELOC (keep a zero balance) that we opened at no charge when we bought the house. This account would push our expense coverage to about a year and a half, if necessary.

    I didn’t count 529 accounts or Roth contributions which could also be accessed under true emergency situations.

  5. I had enough cash savings to cover 11-12 months, but I just put a big down payment on my new condo. So, i’m slowly building it back up. I think it is important to have enough cash savings to support 6 months of expenses. Everything else should be thrown into tax-free investments.

  6. $25k in laddered CDs at 5.5% with monthly spending of ~5k (yes, I know that’s high…I live in NYC with my wife). We’ll have to up it to $30k so we have at least 6mo reserve. Have saved us 2-3 times in the past so I really believe in it.

    60k in CD for house downpayment, hopefully will hit 200k in 1 yr to buy a house (fingers crossed for the market to crash by then)

    Oh, and no credit card debt at all, yay.

  7. I find this an interesting question as I have been pondering this a lot lately.

    We have settled on 3 months of basic expenses in emergency cash. For now it is in MM because rates are so good, but overall will ladder CDs if we can get a better rate.

    We used to save more cash but are rethinking that. We try to save $5k/year for house repairs/maintenance and new car fund, on top of the $12k, and consider the $12k rather untouchable.

    We came to this conclusion because I have a very steady job and we have enough wealthy relatives to borrow money from low-interest in case of emergency AND plenty of 0% credit card loan options. So though we are quite conservative, we felt diverting more money to retirement and investments was more prudent than hoarding too much cash. Especially with our individual circumstances. It makes it scarier for now, but know eventually we should have a decent investment portfolio to fall back on as well.

    We also have a newer car that we could sell for an additional 3 months of expenses, which helps. If I lost my job for a long period of time or we faced a huge disaster, the second car could go.

    It’s tough because part of me would love to hoarde more cash, but then you lose the opportunity costs of investing. So I find it is a balance and a very individual thing. If I had a riskier job situation I would keep way more cash myself. Then again if we save up money for a new car and something happens that will be emergency cash to tap as well. Being flexible with your money can help you in an emergency. For us at any given time we may have 6-12 months to tap by selling some assets, etc.

  8. I have about 9 mos in cash. This could be used in case of an emergency. However, since emergencies dont happen often, I believe the real benefit of such a fund is peace of mind at work. I read an article which stated that having an emergency fund in the 6-mo to 1-yr range (as opposed to 3mo) gives you more leverage at your work to ask for what you want (money, flexibility, etc). If you know you have a back-up fund, you can go into reviews with more confidence and be willing to dig your heels in to get what you want. Of course, on the other end of the spectrum would be somebody living paycheck to paycheck under a mound of revolving debt, just trying to stay afloat. If you are in that position, you HAVE to go to work and have much less flexibility to drive home a hard bargain in fear of losing your job and having more debt pile up.

  9. I’m not sure if I’m proud to say I have no emergency fund — but I’ve been working out emergency scenarios since I bought my home 7 years ago and had my daughter 3 years ago.

    My checking account usually has no more than $1000 as a buffer. I contribute as much as I can to my 403b and I pay all the bills and use the rest for spending money. I don’t have a formal emergency fund — however, I do have a $10K line of credit at my credit union in case I run into any problem. The interest rate is high (14%), but I would only use it in an emergency, which has happened so far.

    My emergency plan, if I were to lose my job, is to use my credit card checks and/or the line of credit until the end of the year (at the lowest possible rates of interest, of course). Then, at the beginning of the next year (for tax purposes), I would withdraw money from my retirement to cover anything that I borrowed in the previous year. I would probably try to qualify for a hardship withdrawal, but even it that wasn’t possible, I would withdraw with the penalty.

    Yes, I would pay that 10% (over the income tax) on my retirement withdrawal, but by not having an emergency fund I have been able to set aside tax free money that has been earning much more than 10% this year anyway, so I think it’s a fair deal. And if I’m lucky, and continue working, then all of the money is already socked away. Is this a dangerous way to do things? I’m not really sure…

  10. I currently have $1400 (about 0.7 months of expenses) in my emergency account, and I contribute $200 a month to it. Ideally, I’m aiming for 4 months of expenses.

  11. I have about 6 months saved based on my current expenses. But I would drastically cut my expenses if I ran into an emergency.

  12. I have $0 emergency fund right now, as I am aggressively paying off credit card debt. I should be done paying everything off around December, however I am about to move a large chunk w/ a 0% BT.

    Once I’m clear of debt, I will start building my emergency fund. I’m shooting for 6 months of expenses.

  13. I have less emergency fund than I would like because I am still paying down debt, and it pains to see cash sitting around when I have high-interest debt. But, like Jonathan, I have a sizable Roth IRA. While I wouldn’t be thrilled about it, I could take out the principal in a true emergency.

  14. My votes have been cast =)

  15. Steve Austin says

    Funny thing about this emergency fund terminology is that it loses meaning as one approaches/enters “retirement”. At that point, if one has managed to attain a debt-free life like Mike L (including no home mortgage), emergency fund == retirement fund, true? Calculated that way (like Valentine including the Roth IRA), current emergency/retirement fund is 23 yrs. That’s just burning into it at current expense level, and doesn’t reflect the fact that I’m *not* burning into it but rather living off of the investment *income*. It’s hard to be fired or laid off by your retirement fund, so in that respect a distinct emergency fund is meaningless. (But I voted “more than one year” — can never really have too much safety.)

  16. Hey, everyone stole my name =p I’m sorta in the same boat as you in that I have a huge amount in the bank (3 years of living expenses) due to saving for a house down payment. Of course, once you buy a house, your expenses will increase too. Also, you need to consider the fact that owning a house will require a larger emergency fund in case of job loss/illness since risk of foreclosure is much more important.

  17. Interesting to see other’s rsponse.

    I have 12K in a high yield savings account, 14K in a credit union (2-5 year CD’s), 185K in a cash brokerage account.

    So — in emergency, the high yield savings goes first, then start breaking the credit union CD’s, then the brokerage account. I could go 4 or 5 years on this (keeping my house), or a lot longer if I sold the house (which would also unlock ~$200K in equity, tax free).

    I actually lost my high paying, theoretically secure, job at the end of 2000, and it took a long time for me to find a new gig. I work in an industry where I make a lot, but have no job security — so it is important to me to have a well thought out emergency plan.

  18. JTMurdock says

    I know for me, I’m so happy I had the emergency funds that I did. My company went belly up and now I’m living off it. Hopefully my unemployment kicks in soon so I don’t have to dig too deep into the funds, even though I know I will. Hopefully a new job pops up soon so I don’t even have to take that much unemployment insurance.

  19. I like the responses that give reasons. I think it is most important to have plan rather than a fixed amount. What are the chances you’ll be out of work, be disabled, or have a major unexpected event, and what are your resources and responsibilities? You won’t need as much if you have a really secure job and really good disabilty coverage or maybe you work for a sub-prime lender. If you own a place, you might need to repair a roof or some other major expense, while if you rent, that isn’t your responsibility. Maybe you have some fixed payment that can’t go away like child support. One person above plans to take advantage of their credit, and another person has retirement assets that can be used. Some poeple can count on their relatives (mom, dad, brother, sister, etc.) My point is that a fixed number can be a guide, but what each person will need will vary.

  20. I like to carry around 5 months expenses, but that number might vary depending on type of work, number of family members, etc.

  21. Joe Van Dyk says

    I have $25k of cash tucked away in a Vanguard money market. Get a little over 5% return. That should cover around 8 months of living expenses easily. 5% should outpace inflation and lifestyle cost increases, I hope.

    The amount that each person should save, imo, should vary depending on your job, how much you can easily cut expenses if needed, if your spouse works, etc. My wife is a teacher and teachers don’t get laid off often around here, and we can almost live off her salary, so we’re doing pretty well.

  22. The math on this question is always highly variable, especially when you factor in retirement. If you’re planning on retiring in the next 5 years, then “emergency fund” probably is “retirement fund” as by this point you’ve already cashed out stocks into low-risk investments.

    For those not in the “retirement zone”, I think the big numbers are really:
    1. Do you have family support nearby?
    2. Are you eligible for Employment (or Unemployment) Insurance?
    3. Can you live off of EI/UI?
    4. How tough is it to replace your current job in your region?
    5. What are your deductibles?

    My answer was 1-2 months of EF, but that’s b/c I have lots of other safety nets: My father lives nearby and has an extra bedroom, I am definitely eligible for EI and that number would cover my bills for the month. I could turn my job around in about 2-3 months and could probably use the “time off” to improve and update my skill set.

    So the only other thing to save for are insurance deductibles. If you keep a couple of grand around for all of the insurance deductibles (home, auto, health), then you should be mostly covered. In my case this is like $500 of tenancy.

    I mean if you lose your job and come home to find that your house and car have burnt down. You’ll probably want enough to cover all of the deductibles, but that’s a pretty extreme case.

    For most people the emergency fund is trying to act as an insurance plan for your job. Like most insurance, you can’t cover everything, so you have to cover the risks you think are reasonable.

    If you’re in private consulting with 2.2 kids, a house and two cars, then you’ll need several months worth of EF to cover all of the risks. If you’re in a unionized government job, your risks of being laid off are pretty low, so you probably don’t need a big EF. In that case your biggest risk is likely obsolescence, as government does not always encourage great skill sets.

    Personally, I think that the best insurance for your job is to live beneath your means (so that you can take a pay-cut) and to do your best to remain highly employable i.e.: investing in yourself.

  23. This is hard to answer directly. First, though, let me say that whoever mentioned a large emergency fund as giving much better peace at work and additional leverage is dead on. Since our fund got large both our incomes increased substantially (nearly doubled overall). I cannot overstate how nice it is to have a large FU fund (f(*k you fund).

    We are DINKs and both of us have two major, fairly steady sources of income. So that makes it hard to calculate how long the FU fund will last. Worst case scenario (4 jobs goes to 0 all at once) we’re at about 18 months before we have to touch post-tax mutual funds. I think a more realistic scenario is we lose the highest paying of the 4 jobs. In that scenario we are still very cash flow positive so the FU fund is untouched. Actually we can live indefinitely on any one of all but the lowest-paying of the 4 jobs. We are very fortunate in this regard and this has opened up opportunities that I think are going to further increase our income-expense ratio that we wouldn’t have without the ability to take some risks.

  24. I have enough cash savings at INGDirect to equal my one month take home pay (just over $5k). Obviously if I were to lose my job, I’d cut back substantially on my expenses and that one month pay would translate easily into two months. Then I have access to about $3k in a plain mutual fund and $15k cash value in a whole life insurance policy (stupid, yes I know, but it was my wifes from a long time ago). IF that all dried up, I could tap into about $22k in retirement funds (401k & Roth).

    I voted however that one would only really need about 1-2 months of basic living expenses in cash savings. Anymore than that and you’re really losing the investment potential of that money.

  25. the how many months should you have questions hould have had a choice “it depends”, because it really does depend.

    currently we have 27months worth of expenses saved, but that is right now. when we move again in a year, that same amount will add up to only 6 months worth of expenses. this is in liquid accounts

  26. 6 months in high yield savings account, plus savings for a house down payment in another savings account.

    In Quicken I have my regular budget, and am in the process of creating an emergency one which factors in reduced expenses for non-essentials, and increased expenses for items that are currently subsidized by my employer, such as health insurance. I don’t count in unemployment benefits but expect to tack them on to my funds so they last longer.

  27. I don’t have emergency cash, all my money goes to retirement accounts and 529, but I have about $80K borrowed from 0% CC and sitting in 5.25% presidential bank saving account or TBill. I can use them as emergency cash, and I also treat it as saving plan since I have to pay almost $2000 a month as minimum payment, I paid the minimum payment from my paycheck instead of from the saving accounts.

  28. Yes, upon further thought I should have nixed the 2nd question. I never thought there was a “right” or “wrong” answer, just wanted to see what people thought.

    I was going to add a 3rd question about where people kept their emergency funds, but decided that would be too much.

  29. I have about $1500/month in expenses and I try to keep around $10k (so about 6 months). I am a student though, so my income isn’t very stable and I don’t want to have to take out loans if it decreases.

  30. I put 0 months of emergency fund but if needed I do have close to 60,000 in available credit plus whatever equity I have in my home.

  31. Hey Jonathan………..

    Ya know what *I’d* like to see????? A BLOG FOR MONTHLY LIVING EXPENSES BROKEN DOWN……….COMPLETELY!!!!!!!!!

    THAT’S part of my problem. I think I fall into the ~1year worth based on what I’ve got in FNBO & Emigrant, but to be totally honest, I’m not sure EXACTLY what I burn thru each month.

    -Mortgage $1,200 (+ we pay an extra $400 each month) so $1,600.
    -Private School for kids $1,000 (based on $1,300/9mos. + materials)
    -Cable TV/HSI $100
    -Electric $75 (average???)
    -Gas $20 (average??)
    -Water/Trash/Sewer $60 (average??)
    -Food (Kidding myself??) $500
    -Gasoline $400
    -Clothing $100 (w/ my wife……who knows)
    -Church $400 (plus whatever my wife dishes in cash that I have no idea about)
    -Car Insurance $100 (averaged from $600/6mos)
    -Fire Insurance $33 (averaged $400/yr)
    -Property Tax (included in mortgage due to impound acct)
    -Entertainment (again, guessing) $200
    -Miscellaneous (Starbucks, Tide, Car Wash, etc.) $100
    -Roth IRA $360
    -Liquid Savings $400

    Let’s say I’m burnin’ thru approx $5,500/mo. (WTF?????) Makes me sick to think we spend that much money each month, but take away about a grand for savings stuff & realize that mortage & private school are investments too (sorta) & things get a little more realistic. And if I bought a new house NOW (2007) I’m sure my mortage would be $2-$3K Eeeeasy!

    Anyway……… all makes me sick. I just wanna be financially idependent & golf all day……….(c=

  32. I think I barely have enough cash-on-hand for a 3 month sting… which isn’t too good, now that I think about it.

    but then again I’m still a “student,” so living expense isn’t exactly something too difficult to handle.

    As with what Robert mentioned, if you count the CCs… well, I have over 6 figures in “emergency fund” then. Ho ho.

  33. My expenses work out to about $2500 to $3000 a month depending. So $9000 has been my goal to have 3 to 4 months worth of expenses covered. I’d love to get up to 1 year covered.

  34. I’m self employed and keep 2-3 months cash in my business account (biz expenses plus payroll). I keep less than $1200 in the family checking account. We bought our first home in 2004 and took out a 5year ARM at 4.875%. The 5 year note has kept me motivated to aggressively pay down principle vs having emergency cash on had. We can always draw from the HELCO in an emergency. Goal is to payoff the house in a 15 year term, plus healthy retirement contributions and the 529 for my son.

  35. We have 75K outside retirement split between cash (high yield savings), bonds, and mutual funds. Like you, this is earmarked for a future housing purchase, but we count it as our emergency fund. We spend at least 6K per month. So I guess that is a year, but I always say we have 6 months…We also have a 75K HELOC which could be used in emergency.

    We are also trying to figure out how much to use towards a house/condo purchase and how much to save in cash. I would like to put at least 10% down when we purchase and will probably be looking at housing in the $700K – $800K range, so that would be all of our emergency fund! We plan to keep our condo and rent it out which makes an emergency fund even more important. I guess we have a lot of saving to do. Our housing purchase date is not yet determined. Right now we are just watching and waiting.

    In addition to this money being available for our housing purchase, I will be off on maternity/baby bonding leave until December so we might have to dig into some of our savings for living expenses during that time. We are hoping we will be able to reign in our expenses enough to not have to do this.

    I definitely agree that how much you need depends on the situation. With my maternity leave, we need more than someone else might need. Also, when we are renting out our condo, we will need extra. On the other hand, my husband is a medical doctor, so his job is extremely stable. Mine, on the other hand, being a software developer, is not so stable. It may be now with the great job market, but I was around and in the industry during the last tech downturn, so I never count my job as particularly stable.

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