ADVICE NEEDED

SURFER4LYFE

Hello MM board, I need some advice about Emergency funds. I follow Dave R. and I only have 1000.00 in an emergency fund at the moment. I feel like i need more. I dont have a savings account at the moment. I am also not contributing to my Emergency fund. I only put money into it if I use some out of it for a new tire or whatever may come up. my questions are

1. how much do you all keep in your emergency fund

2. do you have a savings account and how much do you keep in it

I have no credit cards that i could use if i had an emergency over 1000.00

any suggestions!

simplyelise

We're on DR and H is not comfortable with just 1000 in a our emergency fund (which we keep in a basic savings account). So we keep 3000 in it while also contributing 100 a month to a car replacement fund for his vehicle (currently at 500). His vehicle has 200k miles and was only worth 2500 when he bought it a year ago before adding a ton of miles in his previous job which required travel.

We don't own a home and we don't have children or pets. Our health insurance (600 deductible with low OOP max)  is crazy amazing and we have full coverage on our vehicles. We also could live on either one of our salaries if we had a single job loss. So we settled on 3000 as what we both felt comfortable with. We especially felt okay with this since the only debt we're attacking is SLs. 

I think you've got to factor in a) what risks do you have for emergency situations b) how would you handle a job loss from either partner c) how drastic is your debt situation. You might be in a situation where you don't have a ton of wiggle room between your minimum debt payment and what you're putting at it in the snowball. In that case, I might just keep chipping away at the debt until you have a bit more breathing room to where you could put an extra 50/100 towards efund a month.

I know my method is not strictly DR, but we go full force on putting 50% of our income towards debt, so I'm cool with having more in savings just in case.

Sisugal

IMO $1000 is not enough 
IF you have a good deal of debt that you are trying to pay off - I would split the extra you are putting on the debt (above the minimum payments) and split that amount 50-50 to debt and e-fund.  Keep doing that until you have at least 2 months expenses in the e-fund.  Then go back to hard core debt repayment.  When the debt is gone, work to build your e-fund to 6 months' expenses.

YES - get yourself a savings account
YES - get yourself a credit card if you do not have one.

Make sure you are reading from an updated Dave Ramsey version of the Total Money Makeover --- since the 2008 recession it has been revised.

YES, do contribute to your retirement while you are paying down debt.

als1982

We felt completely comfortable with only a $1,000 e-fund knowing that we could float a $5,000 expense with our extra monthly income. Once we start a family, we've agreed to bulk up to $10K. So, it all depends on your comfort and other factors. Everyone is different and you're going to find the scope of opinions on this board.

abrewer5

We currently have $4000 in our e-fund which is pretty much our only savings at this point as we pay off debt. I should have my student loans paid off this time next year and at the time I'll beef up our e-fund to $15000 which is a little more than 6 months of expenses for us. While paying off my SL's I'm also putting $200 into our e-fund savings every month. If you aren't comfortable with what you're currently doing than I would recommend changing it up and add a little more to your e-fund while still making at least minimum payments.

I will say part DR's reasoning behind the small e-fund is that you feel uncomfortable and work harder to get out of debt in a shorter amount of time; however, that might not work for everyone, so do what works for you.

Also, I do not think you should open a CC for emergency purposes only. I would just put more in savings until you feel comfortable and then go back to your snowball.

hoffse

I've always thought $1,000 is crazy low.  One really bad day could blow through that.

IMO you need enough to cover your insurance deductibles or OOP max's simultaneously.  If you are a homeowner, you also need to be able to cover a major repair that wouldn't be covered by insurance (like your A/C dying).

For H and I, that's an absolute bare minimum of $5,000.  We could comfortably cash-flow another $3,000 if an emergency popped up.

I know people successfully do the $1,000 thing, but it would just make me feel naked.

short+sassy

Great answers from the PPs.  As @simplyelise points out, the best things to look at are your own situation and your comfort level.

These are questions to ask yourself:  Do you own a house?  A car?  Have children? Job stability?  Medical deductible?

If you think about it, those questions are all related to income, expenses, and the potential for emergencies.  All things to keep in mind when deciding on your E-fund.

Also the fact that you don't have a credit card.  Not that you would normally want to use a credit card for an emergency, but they are there as a last resort.  I would highly recommend getting one, even if you don't really plan to use it.  It is an essential part of building your credit report.  Which, even if you won't be financing anything any time soon, you probably will someday.

As for me, I haven't had a savings account in the past but I am about to open one that will be earmarked for investment property down payments.  Banks don't like it when it looks like you are pulling your down payment and closing costs out of thin air, lol.

I keep around a $1,000 e-fund, actually it is probably more like $1300 because I usually keep a few hundred in $20s also.  But I have multiple sources of income and no kids.

Plus I also have a Home Equity Line of Credit (HELOC) on my home...which is a revolving credit line...like a credit card.  Except my home is collateral for it so the interest rate is only 4.5% on whatever my balance is.  So technically I am a bit using a credit line as an e-fund, which is generally not MM approved.  But for as rarely as I have emergencies come up, I'd rather use my cash differently than just sitting in an e-fund.  Then I can just pay myself back over time if I ever need to tap into my HELOC.  

SURFER4LYFE

THANKS LADIES!

AprilZ81

PP have already offered great advice, mainly you need to do what is comfortable to you.

We don't have a true "emergency fund" but we have funds available if we need to use it.  We have  $6,000 in a mutual fund (non-retirement) that would cover 2 months of bare necessities.  DH also has some individual stocks (non-retirement) worth a few thousand that we could cash in if needed.  

In a crisis situation we can use our HELOC, draw from our ROTH accounts and borrow from our parents.

We have a variety of savings accounts for different purposes that we can also reallocate.  We have a vacation savings, new car savings, general savings, and Christmas/Gifts savings.

ETA:  We own a house and just replaced our HVAC system and all of our appliances are about 1 year old (except the hot water tank).  The roof is only 5 years old so that takes care of all of the larger expenses that wouldn't be covered by our homeowner's insurance.

brij2006

We follow DR as well, and only have a $1,000 E-fund.  

However, he recommends sinking funds on top of the $1,000.  So we actually have $500 for car repairs and another $500 for house repairs on top of the $1k Efund.  If we pull from either one of those, then we budget to add back to it in the next month.  Also, he recommends you are proactive about things.  So if you know that the tires are getting bad on your car and you will need new ones by winter, then get an estimate for them and save up over the next few months to be able to pay for it.  Many things aren't a true emergency and were things that could have been saved for.

That's where a lot of people look at the $1k Efund and think OMG Dave Ramsey, he's crazy!  But there's more to it than just tossing $1k into an emergency fund and saying "hope that works in an emergency."

Xstatic3333

We have a house, but no kids yet. I feel very uncomfortable below $5,000, and most comfortable at $10,000, which is a full three months plus for us. However, we both work in a field with so-so job security and could not get by on one income (though we could handle a serious pay cut). I think these things are very dependent on individual situations.

We're currently below $5,000 due to an unexpected tax bill combined with a few non-MM choices around the same time, but have stopped saving except sinking funds and retirement until we're back there.

MommyLiberty5013

I think the idea with DR's $1k in an e-fund as a starting place is that $1k will cover many, if not most, emergencies.

Generally though, beyond the $1k, you should save at least 3 months of living expenses, but a lot of people here do 6 months' worth. Living expenses would be the expenses you'd need to pay for to stay afloat If you lost your source of income...things like food, gas, insurances (health, auto, renters/homeowners, etc.), utilities (not cable TV [it's not a necessity]), rent/mortgage, cell phone.

I wouldn't feel comfortable saving for extras or bonus things like new cars or vacations until my e-fund was where it needed to be.

A PP recommended you getting a credit card. If you do, you need to pay it off in full and on time each month. This is the only responsible way to use it. They are more secure than debit cards and/or carrying cash and many offer pretty great rewards programs, which are only beneficial if you pay the card off each month in full. The major drawback is that without spending control you can rack up debt that's tough to pay off at high interest rates.

vlagrl29

Our e fund is more of an overall savings for - car repairs, home repairs, medical bills - things that are not expected.  I know some here have different account for home and auto maintenance, but I don't like keeping that many accounts open so we lump it all in one.  3 months expenses is comfy for us, but currently we are replenishing so it's only at 2 months.  I've come to terms that it will never stay where I want it so we contribute to it monthly.

RosieC18

We have one savings account that has a decent rate and holds all of our non-retirement savings, so we don't have an "emergency fund" per se. We do consider the first $30k of that to be our emergency fund and wouldn't let the balance drop below that except for a true emergency. That's a lot (especially for this board), but we live in an HCOL area. It represents 6m of normal spending. We're also saving for a house, and when we get closer to actually making an offer we may cut that buffer down to 20k, and use the 10k as our new house fund (furniture, quick remodel jobs, stuff that comes after closing costs & down payment). My job is very secure, but I also make a lot less than my husband who is in a more volatile field (private law firm v. government).

I am very much of the school that e funds are personal and depend on what your risks are, and your risk tolerance. I have a very low risk tolerance and want to know we'll be okay if one of us is unemployed long term, but we also have relatively little debt. If we were in serious debt repayment, I would look at our deductibles, subtract how much we could cash-flow in a month and save the difference.

Credit cards are all about knowing yourself. We put everything we can on credit cards that we work for points, and I'm happy to have that cushion if things were to go really sideways. However, neither of us has ever carried a balance in 10 years of using credit cards and we're not worried about overspending. Think about your spending history and whether you think it will be a temptation if you have it in your wallet, or even in your sock drawer.

cbee817

We have a savings account with 4 months of expenses saved and a CD with about 5 months of expenses saved. We tend to keep more than most because we have 2 kids, a mortgage, and DH has been through 3 layoffs/rehires with the city school district in the last 5 years. My job is secure and I make about 65% of our total income, but his is still really important (funds our massive monthly day bill). 

We use credit cards for anything and everything- all paid in full each month. We use them for convenience and points, rewards, free shipping, cash back- it works well for us.