I just read an article on MSN.com stating that most people don’t have the recommended 6-months of living expenses saved up. Part of this is due to the crummy economy and the difficulty of saving that much money if work is sporadic. Take for instance a person who makes $50,000 and needs $3,000 per month for living expenses. (Okay. Maybe my figures are high because I live in an expensive city – please comment if this is the case). They need to save $18,000 for that 6-month cushion. If they can save $500 per month towards an ER fund, it will take them 36 months, or 3 years to save that amount. And that doesn’t take into consideration any retirement savings.

I know that I don’t have 6-months of living expenses saved up in my emergency fund. Instead I have some savings in my ER fund, some in my wealth building fund, some in my large purchase fund, and some slush money that covers months when I come up short. But even with all of that added together, it wouldn’t cover 6-months of expenses. What would it take for me to save up my 6-month cushion? At $500 per month it would take me 5 years to sock away enough for 6-months of expenses. I think I’d rather invest half of that into other accounts and build wealth myself.

So how does your ER fund match up?


14 Comments

  1. Money Beagle Reply

    We actually have a pretty decent sized fund earmarked for emergencies. It’s not six months worth, but we do have other assets that we could tap if need be. For example, we also have a ‘New Roof’ fund and other long term savings funds along those lines. If push came to shove, we could tap into those and just delay the projected associated expenses by a little longer until they are rebuilt. But of course we’re planning on it never coming to that!

    • @Money Beagle – I think that’s the beauty of having multiple savings accounts and wealth building funds. If a dire emergency really did happen, at least you have options instead of just one source of savings. thanks for sharing!

  2. Sustainable PF Reply

    We currently have about 6 months but I suspect that will be cut by 66% next month as we consider paying off chunks of debt. In my post today, where I discuss our personal financial plan I ask our readers their thoughts on what we should be saving. I’m really not sure! 6 months seems excessive to me given our (outlined) circumstances.

    • @Sustainable PF – I think 6 months is excessive too depending on circumstances. If you depend on only one source of income, then maybe 6-months is wise, but if multiple streams are coming in then saving 6-months may not be necessary. It’s unlikely that all your streams of income would dry up simultaneously. Thanks for sharing!

  3. retirebyforty Reply

    We have about 4 months. I think that’s about right since we are both working. Even if one of us lose our job, that emergency saving would translate to over a year of living expense as long as one of us are still working.
    Mrs. RB40 just dropped a bomb on me this morning and said she wants 100k in e fund before I quit my job. 😉

  4. Financial Samurai Reply

    I donno… I think mainstream articles really like to paint bad stuff about the masses. I think most people are fine!

  5. Miss T @ Prairie Eco-Thrifter Reply

    Ours is not yet where we want it to be but we are working at it. Our goal is to have 6 months expenses covered at minimum

  6. We do not have 6 month either, we have about 3 months. My DH’s job is extremely secure for the next three years and I would rather put as much money in my Roth as I can over these three years then add to the EF. Once my DH graduates and becomes a post-doc, I’ll add to the EF but it will probably be bonds and stocks not cash.

  7. @retirebyforty
    Whoa! That’s would be a very impressive ER fund. I’m sure you’ll be able to negotiate a less hefty fund before quitting your job. 😉 Is she including your retirement or wealth building accounts into this amount?

  8. @Financial Samurai
    I think that most people “feel” just fine about their savings, but probably don’t have enough actually saved. Maybe that’s the problem; we feel just fine about our finances during the good times but realize during the bad ones that we’re not nearly as prepared as we thought we were!

  9. @Ginger
    You bring up a good point; Does an ER fund have to be in cash? Maybe it can also include a few bonds, mutual funds, or stocks – as long as you also have wealth building funds set aside as well.

  10. I don’t think I need 6 months of expenses, but then, I also know that my parents could give me a place to stay if I couldn’t pay rent for an extended period, and I don’t have kids that need to stay in school or anything. So far I’ve mostly used my emergency fund for vet bills, which take a long time to get reimbursed by the pet insurance company.

    I think 6 months is excessive for a single person with no kids, who can be flexible, but more necessary for a family with kids who can’t be flexible with their bills once they realize they’re going to be living off their emergency fund for more than 6 months.

    • @Kellen – I think that’s a good point; ER funds vary with age as well as circumstances like having a family to care for. When I was in my 20’s, I probably didn’t need much of an ER fund, maybe just enough to cover a month or two’s rent. But now that I’m older (though I don’t have kids) I need much more as my bills have gotten bigger!

Write A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.