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September 01, 2011


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I migrated to a new country nearly 3 years ago. I arrived with not much more than a suitcase and the will to start again. I'm very proud of the progress that I've made, living really frugally I have managed to accumulate an emergency fund covering close to 5 months living expenses.

I would say bad money management from all this loose credit.

How about a $5000 repair job on a sewer line from you house to the street. I pulled it out of our savings.

Most of our friends said they would not know what to do.

It just took a little longer to buy our new car.

Sure $1K would be no problem--like FMF I'd probably charge it and then pay the credit card bill out of savings/emergency fund. My total emergency fund is much larger because it's for if I lose my job and it takes me a while to find another one.

Definitely would be no problem and wouldn't feel bad unless it was for a 'nonsense' type of issue that could have been better prevented.

We could handle many of these issues before it would be any sort of problem for us.


We have about $12,500 for emergencies, but I have a feeling that will be used up to fix some cracks in the basement floor (Irene brought in some water last week); hoping to have a little help from the ins. co., though.

When it rains it pours... I've been in the situation of an $800 car repair followed immediately by a $300 vet bill. Charged 'em both and paid it off. It's so easy to rack up $1000 emergency, and now that I'm a home over I'm sure the stakes are higher, like a sewer line repair Matt mentions... or maybe a new roof... or the worse (in my opinion): a new AC.

Like you and others, I'd use my credit card to cover the expense immediately, then take money from checking (up to $5K), or online savings to pay it off when the statement arrived. There's about a year's basic living expenses in savings right now, so we'd be ok if my wife and I both lost our jobs simultaneously. It wouldn't be fun, but we'd get by.

$1500 for me to remove large trees damaged in a storm (and this had to be done quickly because one was in danger of toppling on our house) and if a tree doesn't hit your house it isn't covered in a standard home insurance policy. Judging by the number of people without a significant emergency fund there must be a lot of them who also own a house. What do they do if they need to replace the roof or a furnace?

We have gone up and down in our emergency fund over the last few years. Our new minimum is $5,000 but we were up to 5 times that 3 years ago prior to my wife staying at home to care for our kid. We instead took that money to pay off some student loans, a HELOC, and down payment for a new car, $1,600 in car repairs over the past 2 years, etc. 5K gives us about 1.5 months worth of savings and soon we should be back up to 3 months.

I would much rather have the 6-8 months cushion but we are working to free up as much cash flow as we can which is why we have cut down the min balance on our emergency fund.

Timely post for me -- I just received an expected medical bill for nearly $1000, and was just thinking this morning about charging it to credit for the points and paying it off next month.

Of course everyone who reads financial blogs like this have the money, its because we care about our finances. Go on a forum for nice cars and motorcycles and ask the same question, I bet you won't get 100% of the people saying they have an emergency fund.

I believe it's truly a sign of the economy. I know a lot of people never even attempt to save for or have an emergency fund. However I also know that a lot of people have gone through their funds due to unemployment, under-employment and losing money on their investments. Lets all hope as a country we can turn things around soon.

I would venture a guess that most people who frequent this website can afford that.

Yes, $1,000 is no problem. We depleted some of our savings this year to pay for Masters degree tuition and some home improvements, but those were planned. We are no focusing on building the savings back up.

I have around $11,000 in an emergency fund. I just broke a tooth and need a cap costing around $900; glad to have the cushion. I work with people in their 40's who couldn't cover a $1,000 expense. They run to the bank of mom and dad. Yet, there's $ for manicures, pedicures, and concert tickets and the latest electronic. It's baffling to me. I'm greatful that I have what I have.

I think this becomes a self-fulfilling prophecy. This is why the traditional media is such a drag on our country. Of course people can have a $1000 emergency fund. Spend less, earn more, and put it aside. There. Done. People will use this headline as an excuse to not save and feel justified for their actions and lack of action. What a terrible headline.

The question is, Do I have a $1000 for an emergency right now? The answer is No. However, I have about a year of money in savings accounts at different banks. It will take about three to four business day for it to arrive in my bank account. So here is my question. Should an emergency fund be available right now?

I'm a graduate student and it took me years to get an emergency savings account sent up. I'm breathing easier now and growing the account. Thanks for sharing this, I'll link back in tomorrows posting.

My question your emergency fund only acting as an emergency fund. Is it a wad of cash under your bed or do you have it in a savings account?

I have an "emergency fund" but the money doesn't only act as an emergency fund. We use whole life insurance to act as an "emergency fund", investment vehicle, and a security model (protected from creditors).

I think that it's great to have an emergency fund. But we should be mindful of what that chunk of money "could be" doing too.

Keep your money doing multiple things...don't make it a one trick pony.

Pierre - if, like most people have mentioned, you would charge the expense and then pay it off when the credit card statement arrives...I don't see why you would need to get at your money any sooner than 3-4 days.

I also would charge the expense, they pay off at the end of the month.

I would
1.) Pay it from my checking account, and if there wasn't enough, then:
2.) From cash that I have sitting in my brokerage account, , and if there wasn't enough, then:
3.) From my cash that in the checking account of my side jobs, , and if there wasn't enough, then:
4.) From my paypal funds (after I transfer it to my checking account), and if there wasn't enough, then:
5.) Beg my parents or sister for some moolah! :)

We both keep our separate instantly accessible funds at our Credit Union - currently about $45K, the majority of which is in Savings accounts. Around the 1st. of the month I transfer money from savings to checking to cover the BillPay items that I have already entered this month to pay off our credit cards and the checks that my wife will be writing. My wife is "Old School", has never used a computer and still likes to use Cash and Checks. Actually I like it that way.

If I was hit with a much larger unexpected expense I would also use our municipal bond interest which arrives in varying amounts from 80 different bond purchases, on the 1st. and 15th. of every month, rather than reinvesting it as I just did today as soon as the market opened.

Not that I would do it in a million years we could also charge almost $70K between 4 credit cards that we have but I would rather sell some muni bonds than have to do that and pay an exorbitant amount of interest to the greedy banks. I prefer that they give me cash rewards back rather than that I pay them interest.

One other piece of useful information I will pass on is that I just discovered that Credit Unions are also members of a huge CO-OP ATM network whereby credit union members can withdraw cash without any fees or other charges from any 7-11 store that has an ATM (and most do). The only minor inconvenience is that this network requires 4 passwords, your ATM card password - the last 5 digits of your SSN# - last 5 digits of your Phone# - your 5 digit ZIP code. I have been keeping a small balance at BofA so that I could get cash at a BofA ATM in our nearest supermarket, but now I can just close that account and also eliminate the incessant, frequent, and annoying phonecalls and mailings from BofA trying to sell me their other financial products.

I have a small emergency fund ($5K). I suppose I can handle $1K in an emergency but wouldn't want to have to handle more than that as it would deplete my savings. Rebuilding now from having used my e-fund for other unexpected emergencies. Note: I feel insecure with the $5K.

I have a general problem with studies like this. They only polled 2700 people which represents 0.00009% of the US population.

64% sounds way to high to not be able to afford $1k in emergency funds.

SM --

I've worked in business for decades and have made multi-million dollar decisions based on 300 to 500 people. If the sample is right, a small number like this can be used to estimate the entire population with high probability.

I'm always amazed when I hear statistics like 'The average American household makes $50,000 a year".

I've never even come close to making that amount, in all of my 40 years of living. Neither have most of my friends. Our average earnings are around $15,000-$20,000/yr. Some of us make lower than that (me) and some make slightly higher (I think my ex makes around $22,000/yr). We're definitely NOT out there getting manicures or coffee or frivolous stuff. It's hard enough just to survive.

That said, I've managed to save up enough to cover a $1000 emergency with cash, but that's only because I've saved for about 30 of my 40 years. Were anything to happen to deplete my emergency fund, it would take decades of saving to replace it again.

FMF - I agree if the method/sample is right, it could be a worthy test. For a business decision, your total target audience is probably a few million. For example, if the target audience is 10M and you polled 500 people, you got 0.005% sample. US population is ~300M. For the same 0.005% representation, you'd need to poll 15000 people.

On the main topic, I found that the median US income was $45k in 2004 (Wikipedia). Let's assume that has risen to $50k now.

I got varying numbers for the median savings rate; let's assume it is 1%.

This means that at least 50% of US population saves $500 per year. This should be enough to collect at least $1k in emergency funds.

Sorry to drag this on... but I just can't wrap my head around the fact that 64% of US population doesn't even have $1k in emergency savings.

SM --

Really? When you look at related facts on how Americans handle their money (many of which I've posted on throughout the years), I can't see how you'd be surprised...

We recently upped our family savings to prepare for the baby's arrival. It covered our deductible for the labor & delivery. Right now we're working on replenishing it, but we still have money in the account for emergencies.


What type of work do you do, if you don't mind me asking? You obviously have the principles of personal finance down and are a regular commenter. Would like to get your perspective....

oiy... I don't know what we would do without our emergency fund, mainly because we are relying on it very heavily this year. Unfortunately. Between both unexpected and semi-expected medical bills, emergency home repairs, and changes in tax situations, its been a rough year for our emergency fund.

If people live so close to the edge that they don't have an emergency fund I can see how bad economic times can go from bad to worse very fast.

I do think that its important to keep in mind not everyone has the same starting situation. I would expect someone who was struggling working low to minimum wage to be less likely to have $1000 in cash than someone who is making 50k/year. If you think of it as a percentage of your take home pay - someone who makes 20k/year (almost 40% higher than minimum wage) this is probably an entire month's take-home pay. Then think of what your monthly takehome pay is, and think about how much an emergency of that size would hurt. Not to mention that someone making that amount is likely to have higher-cost emergencies due to opting for the cheapest medical plan at their work, or driving an older car...

Its easy to look at the median income, but I would guess that the majority of that 64% who say they couldn't swing a $1000 emergency are below the median, not above.

You know, I think that a lot more people would be able to afford the emergency expense if it occurred than think they can. I suspect that many people spend upwards of $1,000 a month on discretionary spending (i.e., consumer shopping) because they have the money sitting in an account (for a very brief amount of time - after all, it's just waiting to be spent!). In other words, many people probably feel like they couldn't possibly come up with $1,000 extra because they never save anything they have, but if they just spent the $1,000 on the emergency, it would simply require them NOT to spend the $1,000 on a new ipad or that awesome new purse. Still, a sad state of affairs to be enslaved to consumerism (and not even know it).

@Jonathan - i don't know - most people I know don't spend that much on consumer shopping a month. A new ipad and new purse every month? The people who spend like that aren't the ones who are struggling to come up with the $1000 because you're right - they do have it in their accounts already. Its more the people who are agonizing over the fact that their electric bill is $130 and they only budgeted $100 for it who are going to be thrown off by an unexpected $1000.

Not to mention, if you only have $1000 in your emergency fund, and it takes that long to save it up, you're screwed once you get hit once.

@SM -- "at least 50% of US population saves $500 per year" - doesn't necessarily mean that they save the money in an emergency fund. Several people I know save a lot more - but all their money is going to retirement and college funds rather than any into an emergency account. If something comes up they have to juggle credit cards and other accounts rather than having a set emergency fund to use for an emergency.

That may be why there is a discrepancy between statistics - overall savings versus one dedicated just for emergencies.

To answer the question - we could handle $1000 easily at this point. The emergency fund is up to 3-4 months of "No changes expenses", or 8 months of "not quite bare bones" expenses. I'm going to get to a year eventually, but now that the fund has made it this far I've reduced the total going in regularly so that it can be used for some other targeted savings (like a new car, or future home repairs).

Yes, we could handle a $1000 emergency easily. We would put it on a ccard and just pay it off the next month. Or use the "slush fund" in our checking account (usually have a $1000 or so extra in there). We currently have 4 months of "real" expenses in our E-fund, which could easily be stretched to 8 months of more frugal living. We also have money saved that is earmarked for other things, and in a true emergency we would tap into that. Then there are investments we could access, etc.

We have 2 months in checking and another 7 months in our ING account. We also have strong monthly cash flow. Emergencies of most sizes are just not a problem. Great peace of mind!

I don't take anything for granted anymore, I'm 58 years of age and have lived very close to the edge sometimes because I was just blind to what was possible. Now I have learned to say no to my darling daughters, give when it's feasible,saved about $5,000. and have no debt. I don't have much else, but then again, I don't need much. I've learned not to shop at grocery or department stores for recreation or out of boredom. I think about what's really necessary and currently am determined to eat what is in my fridge and cupboard before buying anything else. It doesn't look like much but it's more than you realize when you put it together in a meal. Also, the situation with 30,000 children in Africa dying of starvation gives most of us a chance to look at our lives and realize what's really important.

Maybe it's because I live overseas where cash is highly valued in times of uncertainty, so I keep about $10K - $20K in a few different currencies, and this can come in handy in case of any unexpected event.


Funny you should ask...Last week I spent almost $5200 on a central A/C unit for my house. Living in Florida and doing without air is not an option. I charged the unit on one of the Chase cards but will pay it off from the checking account when the bill arrives.

Sadly, the 64% figure is no surprise. I think its mostly due to poor financial habits of Americans but a little bit due to the bad economy.

There are numerous surveys and articles about the high % of Americans who live paycheck to paycheck. Typically I see numbers in the 50% range. If 50% of us live week to week financially then its very easy to see how 64% of us may not have $1000 in cash liquid savings set aside as an emergency fund.

The survey of consumer finances from latest 2007 data showed that only 56% of Amercians save at all. So that leaves 44% of Americans who do not save.

Also as KMI said there are certainly people who save money in their 401k or IRA but have no liquid cash. Two of my friends are like that. THey max out their 401k but have no liquid cash a lot of the time.

You'll also hit some people who are only temporarily broke any given time. My friend has been broke on and off over the past year due to buying a house, traveling and a divorce. But give him 6 months and he'll have $10k cash in the bank I'm sure.

Of course with near 10% unemployment you have to also figure that a lot of the long term unemployed people have emptied their bank accounts too.

SM said : "I got varying numbers for the median savings rate; let's assume it is 1%."

Where did you find median savings rate data? I've never seen a median figure cited and I can't find one. I do see average savings rates which have been around 1% as recent as a few years ago. Are you sure it was median you were looking at and not a simple average?/

I make 9.25 and hour and have 35000 in student loans, plus other debt which totals around 53000 (some from a previous marriage where debts were discharged in a bankruptcy but the creditors keep illegally adding them to my credit report anyway, despite being contacted by my attorney more than once). I thought becoming a nurse (just graduated today) would make a difference, but looking at the debt and my life, I feel like I'll be a slave to debt forever, no matter how much I work. I'm tired of driving a crappy car and living in a crappy place that isn't mine, and I will try to do something about it. At 40, I just feel plain tired. Maybe it's from full-time college and full-time work for a year. I hope things get better, and I'm going to try to make them so, but I need a couple of days to rest.

I could cover a $1k bill, if necessary. This last month I took a long vacation, had to have all 4 new tires on my car and sent a year's money for 4 children I support in Africa and Mynmar. And I still have money enough in my account to buy a used car if my current one falls apart. I feel comfortable with money at this stage of my life.

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