How is Your Emergency Fund Doing?

The Wall Street Journal discussed emergency funds recently and noted the following:

The oft-quoted rule of thumb is to save three to six months of living expenses in your emergency fund. But many people these days will need nine months to a year of expenses covered just to get by. Consider that the average duration of unemployment is nearly 40 weeks. That means even if you have six months of expenses saved, there's a good chance you'll use it up before landing a new job.

They also quote these startling facts:

According to a 2011 study by Bankrate.com, 46% of Americans haven't saved enough to cover three months of expenses. And only 24% have saved enough to cover six months or more.

Yikes!

And just to show how bad things really are, the post features a chart where people are asked if their credit card debt is greater than the size of their emergency fund. The results:

• 54% said no, their credit card debt wasn't greater than their emergency fund savings


• 25% said yes, their credit card debt was greater than their emergency fund savings


• 16% said they didn't have credit card debt or emergency fund savings


• 5% didn't know or didn't answer

Several comments from me:

• I don't hold to a set level of emergency funds for everyone, but six months is a good general guideline for someone looking for basic guidance. If you want to get more specific, the post Six Levels of Emergency Funds. gives some additional details.


• Personally we have about six months of salary saved up which equates to 12 months or so (probably more) of living expenses. It may be a little overkill for us, so I might trim it back a bit.


• Looks like only 24% of the people have met the six-month guideline. Said in reverse, 76% of the people don't have enough stocked away in their emergency funds (especially those 46% who have less than three months of expenses saved).


• Then there's the 25% of people who have more credit card debt than emergency fund savings. These people are living on top of financial time bombs. At least the 16% who have neither are in better shape than this group because they aren't paying outrageous interest charges on their credit card balances.


• I wonder how much of these poor results come from the bad economy. Or would we have seen similar numbers prior to 2008? It's hard to tell, but my guess is that it's a combination of both -- there's a group of people that won't have emergency funds no matter what and there's another group that has had to deplete (or at least lessen) their emergency funds because this economy has caused them to face an emergency (like a job loss.)

How about you? What's your current emergency fund status?

Comments

[Sean @ One Smart Dollar]

My wife and I have about 8 months in our fund. I would like to think that is enough but you never know.

[Nate]

Ummm I would say my wife and I are sitting on about 2 years of expenses right now - but we are planning to start having kids soon and my wife will be staying home (read loss of 1 income). We needed a little more room to feel comfortable.

[Leigh]

I keep one month in my checking account, plus the insurance deductibles. I keep an additional 5 months in an online savings account.

Honestly though, since I'm building up cash to buy property, the down payment fund and the vehicle replacement fund are really secondary "emergency funds", so I could actually live off of my savings for just over 2 years if I lost my job now.

[John @ Married (with Debt)]

Ours is low, probably two months of living expenses. Once we are debt free in three months I will beef it up to at least 6 months. These stats are not surprising because a lot of people treat their credit card like an e-fund.

[Jonathan]

We don't keep any explicit e-fund, though we probably will consider it as we start a family. Like Leigh above, we save up for investment properties and thus generally have enough cash on hand to cover us for many months in the event we had a job loss. However when we buy a property, we can get down to single-digit thousands in our various checking accounts without too much concern as we have great positive cash flow.

However we have a number of safety valves. First of all, in the event of a serious emergency we could cut our giving back considerably. Second we have over $20k (which could easily cover 4-5 months of living expenses including giving) in easily accessible mutual funds. Third, we can live on either one of our incomes so the loss of one job would not be catastrophic. Fourth we're both very secure at our jobs, and are both very employable if we somehow did lose our jobs.

[Matt]

I have a question of what you consider to be part of your emergency fund? What forms of savings do you have? What strategies do you employ in your emergency fund?
If you needed $25k for an emergency fund would type of account(s) would you have it in?

Seeing that I have enough tapable cash on hand I am putting more of my e-money in investments ( short term, intermeediate and long term bond funds) but still consider it part of my emergency fund.

Is this a good idea?

[DM]

I'm in the same situation as Leigh -- I have about 6 months saved as a true "emergency fund", but since I'm saving for a home, I could probably live off my savings for 2 years or more at this point.

[FMF]

Matt --

I think it's about both safety and access with emergency funds. Is the money safe (will it be there if I need it) and can I get to it quickly? As such, I have my funds spread through savings accounts, high-yield money market accounts, and CDs (which would be the last money I would need at the end of a long emergency.)

[Joe @ Retire By 40]

I bet the situation is similar before the recession. People were living high on the hog and didn't save much either.
Where do you stash your EF? In a saving account?
We have about 18 months of fund.

[Ginger]

We only have a month in savings but we as well are saving for an investment property so have extra savings. Also my husband's job is extremely secure and it would be easy for me to find another job. We also have a renter in our duplex so that helps too.

[Luis]

@ Ginger Landlords need more than the basic emergency fund than the average joe to buffer for unexpected maintenance and repairs. Yes, this is even recommended for holders of cash flow positive rental(s). In addition, it behooves to have rental insurance and an LLC.

FMF, America's savings rate has been dropping for over 30 years now so it is definitely not the economy. After Q4 2007 the collective savings rate for the country improved slightly but nothing compared to what it was before the 21st Century.

[Jonathan@Friends and Money]

Got to be honest my emergency fund has taken a big hit. My car broke and I had to replace it, I've had to pay out extra for car insurance and pay out for some house repairs all of which have taken quite a bite!

[Money Beagle]

I've kept ours pretty static over the past several years. We have other earmarked funds in the same account as our emergency fund that we could draw into should the dedicated emergency dollars get depleted. I'm not too worried. Oh, and I have no credit card debt so we're good as far as that goes.

[Matt]

FMF
I think I am reading between the lines on some of these posts in that some people think because they have $10k in a mutual fund (rental property, etc.)that they would use or is ear marked for a emergency savings is not the same as your definition of $10k in a savings account.

The mutual fund I consider an investment which can lose money while the CD,MM or savings as just that emergency savings which is way safer.

But I can see the point of after you have alot of cash on hand why have it in a poor earning savings when you can have it work more for you in the next higher risk account?

[FMF]

Matt --

Yes, emergency fund money should be totally safe -- even if it earns a small amount. All the rest is investment money -- to be handled completely differently.

[billyjobob]

Matt
I feel the same as you about emergency funds. I have a good amount invested in accounts that are not retirement/tax defered accounts. I consider those my emergency funds. If I have enough in the bank to cover a few days, I would be able to pull money from these mutual funds. I feel that you might as well have that money invested,rather than just sitting in a .01% bank account. (or what ever their paying today).

[LotharBot]

I figure you need 1-3 months in an extremely liquid form like cash. Have an additional 9+ months worth stored in less liquid forms like stocks, bonds, CDs, ETFs, etc. as long as they're liquid enough that you can get to them before the cash runs out. Everything else can be stored in illiquid forms like real estate, retirement accounts, and so on.

[Lance@MoneyLife&more]

I have 6 months of expenses (maybe more, because we would cut back) but definitely not 6 months of paychecks.

[Eddie Fink]

6 months expenses, with a monthly deposit adding to it.

Twice a year,if not used, the overage goes to a taxable index fund in case of long term job loss.....or eff-you money if I'm lucky long enough.

[Leon]

14 months of expenses($1500/month), eventually want to have 24 months. In 2 online saving accounts and remainder at local bank.

[Terry]

I'm in the 16% with neither credit card debt nor emergency fund savings. I also inhabir a financial zone near the poverty line. Some months I'm slightly above it and some months I'm slightly below it. On an annual basis I was slightly below it in 2011 and expect to be slightly above it this year.

Projecting from my own position, I suspect this 16% group might consist largely of the financially marginal who can't get credit cards and also can't accumulate any savings.

[Luis]

@ Terry You should do a reader profile and maybe you'll get some helpful ideas!