topic Re: Emergency Fund in Personal Finance

Emergency Fund

Fester82 — Fri, 27 Jan 2023 00:39:35 GMT

How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.

Re: Emergency Fund

Jnbmom — Fri, 27 Jan 2023 00:58:06 GMT

@Fester82 wrote:
How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.

They usually recommend 6 months worth of what your bill are .

Re: Emergency Fund

coldfusion — Fri, 27 Jan 2023 01:01:21 GMT

Mininum of 3 months living expenses, optimally up to 6 months.

Re: Emergency Fund

SouthJamaica — Fri, 27 Jan 2023 02:28:04 GMT

@Fester82 wrote:
How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.

My philosophy is that savings aren't really savings if you're paying a high rate of interest on your credit cards. I'm not a believer in having a large emergency fund which earns next to nothing while I'm paying high interest rates to credit card lenders.

Re: Emergency Fund

Fester82 — Fri, 27 Jan 2023 02:49:11 GMT

Since I first posted this. I was talking with a friend. He said a book he read recommends start with a $1000 fund. Then pay off the cards. After that then work on a fully funded emergency fund. I'm just trying to get thoughts from different angles. So afraid to mess up again.

Re: Emergency Fund

TheRedHat — Fri, 27 Jan 2023 03:22:13 GMT

There is no magic number. It all depends on each person's specific situation and comfort level. Have a budget for your monthly and yearly expenses and plan accordingly.

Re: Emergency Fund

203bravo — Fri, 27 Jan 2023 05:09:08 GMT

Yep ---- that is Dave Ramsey's advice.

Re: Emergency Fund

Anonymalous — Fri, 27 Jan 2023 10:32:25 GMT

@Fester82 wrote:
Since I first posted this. I was talking with a friend. He said a book he read recommends start with a $1000 fund. Then pay off the cards. After that then work on a fully funded emergency fund. I'm just trying to get thoughts from different angles. So afraid to mess up again.

The most likely emergency expenses are a medical crisis, or having to take your car into the shop, or something related to your house like having to buy a new water heater. Having a thousand to a few thousand can cover those kind of expenses, or at least put a significant amount down on them. So I think that's a reasonable minimum buffer. A fully-funded emergency fund (3-6 months income or expenses) is more for very large or sustained costs, like if you're suddenly laid off or lose your home.

Re: Emergency Fund

Aeon — Fri, 27 Jan 2023 13:17:43 GMT

It depends on your personal risk tolerance and your job/income stability. I do not think $1k is enough for an emergency fund for anyone save for someone who has very, very little in expenses each month. I think one month's worth of net income is the bare minimum one should have as a financial cushion. It doesn't make sense to pay high interest rates if you're sitting on a lot of savings making very little, if any, in interest. Use your savings to pay off debt and rebuild your savings. Just be realistic about ongoing and upcoming costs and save for them, even if it means paying down debt at a slower rate.

Re: Emergency Fund

Horseshoez — Fri, 27 Jan 2023 19:09:58 GMT

@203bravo wrote:
Yep ---- that is Dave Ramsey's advice.

Ugh, Dave Ramsey, the charlatan of credit; yeah, he may get a few things right from time-to-time, but I would strongly advise ignoring everything he says.

Re: Emergency Fund

ForwardLooking — Fri, 27 Jan 2023 23:07:10 GMT

@203bravo wrote:
Yep ---- that is Dave Ramsey's advice.

But even Dave Ramsey admits his "$1000 Emergency Fund" is subjective and can vary based on an individual's situation. I have herd him tell many people to skip paying off debt beyond minimal payments and start saving for 3 to 6 months of expenses. Specifically, I remember him telling this to people that were in danger of being laid off or had a kid on the way until it was known that the mom and kid were healthy and safe. I am not a Ramsey fan boy, but I do like how he has helped people that have compulsive spending / debt issues.

Re: Emergency Fund

DONZI — Fri, 27 Jan 2023 23:58:20 GMT

@Fester82 wrote:
How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.

Do you mean you have cards with balances that your cash is needed for? ...and you're wanting to save some cash while paying less than full amount due on the cards?

If you have a situation like that, you may need to add some numbers for any realistic answers.

An emergency fund is similar to retirement planning. Maybe reading about that would help too. I imagine some people writing about emergency funds are 'preaching to the chior' so to speak. So they may assume a bit of the reader and not really touch on fundamental information.

Gist of the thing is, the dollar amount someone calculates based on near term cost of living as they need or want to live, and a duration. As time goes on that magic number is likely to change with or without consideration of the saver.

Re: Emergency Fund

Anonymous — Sat, 28 Jan 2023 02:48:18 GMT

@SouthJamaica wrote:
@Fester82 wrote:
How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.
My philosophy is that savings aren't really savings if you're paying a high rate of interest on your credit cards. I'm not a believer in having a large emergency fund which earns next to nothing while I'm paying high interest rates to credit card lenders.

Right, in some sense it depends on whatever emergencies you are worried about "Would they take a credit card?" If the answer is yes, it makes more sense to pay down your credit cards (assuming this doesn't lead to balance chasing, in which case stop!). Then, if the emergency does happen X months later, and exceeds your funds, charge it to the card again and you have saved X months of credit card interest (minus what you would have got on the savings.)

If it is something like your house needing repair and contractors not taking cards, then you might need more savings, before (hopefully) insurance kicks in, but that could require LOTS of savings and you can't really guard against that.

Re: Emergency Fund

Anonymalous — Sat, 28 Jan 2023 06:42:42 GMT

@Anonymous wrote:
@SouthJamaica wrote:
@Fester82 wrote:
How much of a emergency fund should I have before I throw everything at the credit cards? Thanks in advance.
My philosophy is that savings aren't really savings if you're paying a high rate of interest on your credit cards. I'm not a believer in having a large emergency fund which earns next to nothing while I'm paying high interest rates to credit card lenders.

Right, in some sense it depends on whatever emergencies you are worried about "Would they take a credit card?" If the answer is yes, it makes more sense to pay down your credit cards (assuming this doesn't lead to balance chasing, in which case stop!). Then, if the emergency does happen X months later, and exceeds your funds, charge it to the card again and you have saved X months of credit card interest (minus what you would have got on the savings.)

If it is something like your house needing repair and contractors not taking cards, then you might need more savings, before (hopefully) insurance kicks in, but that could require LOTS of savings and you can't really guard against that.

The middle ground is to have a relatively small emergency fund sufficient to handle small and mid-size emergencies, or at least put a down payment on them. If someone has a lot of credit card debt and no savings, they're obviously very susceptible to even trivial unexpected expenses. Conversely, if someone has no debt and a solid bulwark of savings, they're in good shape even if something major happens. Those in the middle will always be exposed, to some degree. So it's really about mitigating that risk, based on one's personal situation and assessments. Do they think they could put most of their unexpected expenses on a credit card, if something comes up? Are there cases where they'd need cash? Building up a large pool of savings instead of paying down high-interest debt will cost a lot in the long term, but how about leaving a small amount to the side? The extra interest paid over time on a small emergency fund won't add up to a huge amount. The question then becomes, how much?

Re: Emergency Fund

Fester82 — Sat, 28 Jan 2023 07:06:45 GMT

Thank you everyone for the advice. My job is secure so I'm not worried about that as a potential emergency. My home is secure as well. I guess the emergency fund would be if something on my car breaks, or I end up sick and am out of work for a few days.

I think what I will do is build up 2 to 4 weeks of funds then put everything I can into paying off the cards. Again thank you for the advice.

@Anonymous

Re: Emergency Fund

Horseshoez — Sat, 28 Jan 2023 14:31:36 GMT

@Fester82 wrote:
Thank you everyone for the advice. My job is secure so I'm not worried about that as a potential emergency. My home is secure as well. I guess the emergency fund would be if something on my car breaks, or I end up sick and am out of work for a few days.

I think what I will do is build up 2 to 4 weeks of funds then put everything I can into paying off the cards. Again thank you for the advice.

@Anonymous

In your case I think the best bet would be to pay your credit cards down while setting aside say, $100 per month into your emergency fund. Then, as others have suggested above, if your fund isn't sufficient for any unforeseen expense(s), use your credit cards. This model will cost you less in credit card interest and give you your best "in the long run" shot of getting to the point where you're maintaining zero/low credit card balances.

Re: Emergency Fund

OniStringer — Sun, 29 Jan 2023 05:34:05 GMT

3-6 months is a solid plan

Re: Emergency Fund

citymunky — Sun, 29 Jan 2023 05:53:17 GMT

Also, I would keep your fund in an account that offers a higher APY than a normal savings account. Just last month alone, I earned over $80 in interest a month from one account. A normal savings account with an APY of 0.2% would earn just over $0.50 in that same amount of time.

Re: Emergency Fund

Fester82 — Sun, 29 Jan 2023 07:38:29 GMT

Thank you all for the advice. Maybe I'll put away 50 a week into saving for a emergency. Everything else I'll put into the cards.

Re: Emergency Fund

Anonymous — Wed, 01 Feb 2023 01:16:13 GMT

@citymunky wrote:
Also, I would keep your fund in an account that offers a higher APY than a normal savings account. Just last month alone, I earned over $80 in interest a month from one account. A normal savings account with an APY of 0.2% would earn just over $0.50 in that same amount of time.

So you earned 160x the normal savings account (80/0.5) so the rate is 160*0.2 = 32% That's quite some account!