emergency savings

dreamsandshadows · 10-14-2009, 09:04 AM

We are trying to pay off a large truck loan incurred by my husband. I am told that it is very important to have emergency stash of 3 months of income before you pay off debt-- that will take us a very long time to save and then to pay off debt What are the opinions of the people here on wisebread? should it be 3 months of income?
Thanks for your input

trustno1 · 10-19-2009, 01:30 AM

Well, if you are wondering what the "median" household "plan" is... you can figure that most people are about 1 to 1.5 paychecks away from sleeping on a park bench...lol. (no laughing allowed until you have balanced your checkbook this month, hehe).

The "experts" (not the ones on an infomercial, lol), suggest anywhere from 3-6 months of income in your emergency fund. It is wise to add another month these days, to cover all of the trumped up "fees" and "penalties" banks are adding to their "terms". lol

I never pay too much attention to "advice" at face value. This "rule" is like any other...you must consider it based on your individual circumstances. (which in my mind, translates into your personal confidence in your "survival" skills (earning money).

I would have more if I was in the retail sector than if I was in the public utility sector. If I owned a liquor store, I would never worry, because people drink when happy and drink when in crisis.

My emergency fund consists of $15K cash, accessible within a 15minute time frame (at home), a valid passport, current drivers license, vaccinations, updated phone contact list (including attorney, lol), and at lease two solid opportunities for employment that are available immediately should something "happen".

But then, I have been an entrepreneur most of my life, lol. By having my version of an emergency fund ready, I am assured I am only a plane ticket and short hotel stay away from starting another business anyplace I choose.

So, my answer is...the amount is equal to the confidence you have in yourself to make money.

FinanciallySMART · 10-19-2009, 04:41 AM

Emergency Savings is essential but one should not neglect his/her debt. What you can do is try and save a small amount each month and still pay the debt. For instance if you can only start with $20 then put it aside then it will become habitual you will be happy when you see the little that is add you.

Philip Brewer · 10-19-2009, 04:37 PM

There are several reasons to have an emergency fund. The big one is to tide you over a drop in income.

If you have a lot of debt, though, even a large emergency fund can't protect you from an extended loss of income. For that reason, I suggest that people with a lot of debt go with a small emergency fund (something like 1 month's expenses, or $1000), and then apply all the money they can to reducing their debt.

The reason not to have a big emergency fund is that it's expensive--the interest you're paying on your debt is much higher than the interest you're earning on your savings. So, the smaller the emergency fund, the less money you end up paying in interest (and the sooner you're completely out of debt).

Carry that logic to its obvious conclusion, though, and you'd think that an emergency fund of $0 would be the logical choice--but that's not a good idea either. The reason is that there's a third class of problems that even a small emergency fund can help with--things like minor glitches in income and mismatches between the dates you get paid and the dates that your bills are due. If you have no emergency fund at all, something minor can leave you stuck with late fees or overdraft charges that can be really expensive. (I'm thinking about thing s like a payroll screw-up by your employer that delays your paycheck over a holiday weekend, or a lost check at your landlord's office that means you have to temporarily cover the rent twice this month.)

I've written a post on exactly this topic: figuring the size of your emergency fund. A related topic, if you do accumulate an emergency fund is deciding when to use savings to pay off debt. Also related is managing your short-term money, which covers emergency funds, liquidity, and paying for your short-term goals.

dreamsandshadows · 10-20-2009, 08:54 AM

Thank you for the advice all--this gives a good idea of what to do in my situation

Silver purse gal · 11-19-2009, 10:35 AM

I'm adding a postscript here, because this topic is so often neglected by people. First, good for you recognizing that you need an emergency fund! Since this fund is often for more than "emergencies" I prefer to call it "Comfort-cash". Like comfort food, it's there to support and soothe you during stressfull times.

I would definitely start by saving all you can until you have about a month's worth of living expenses put away in a savings or money market account. Then split your monthly savings between 3/4 going to consumer (auto loans, credit card) debt pay down and 1/4 going to comfort cash fund until you build up at least 3 months of living expenses. Here's a link to a page on my website about emergency savings--the why, how and where. http://thesilverpurse.com/comfort-cash14.html

Once you have that comfort-cash in place, you're a step closer to financial security and you'll sleep better at night

Good luck!

10-14-2009, 09:04 AM	#1
dreamsandshadows Junior Member Join Date: Sep 2009 Location: NH Posts: 25 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	emergency savings We are trying to pay off a large truck loan incurred by my husband. I am told that it is very important to have emergency stash of 3 months of income before you pay off debt-- that will take us a very long time to save and then to pay off debt What are the opinions of the people here on wisebread? should it be 3 months of income? Thanks for your input

10-19-2009, 01:30 AM	#2
trustno1 Senior Member Join Date: Jul 2009 Location: Rocky Mtns, Colorado, USA, Earth Posts: 266 Thanks: 0 Thanked 11 Times in 9 Posts Reputation: (26)	Well, if you are wondering what the "median" household "plan" is... you can figure that most people are about 1 to 1.5 paychecks away from sleeping on a park bench...lol. (no laughing allowed until you have balanced your checkbook this month, hehe). The "experts" (not the ones on an infomercial, lol), suggest anywhere from 3-6 months of income in your emergency fund. It is wise to add another month these days, to cover all of the trumped up "fees" and "penalties" banks are adding to their "terms". lol I never pay too much attention to "advice" at face value. This "rule" is like any other...you must consider it based on your individual circumstances. (which in my mind, translates into your personal confidence in your "survival" skills (earning money). I would have more if I was in the retail sector than if I was in the public utility sector. If I owned a liquor store, I would never worry, because people drink when happy and drink when in crisis. My emergency fund consists of $15K cash, accessible within a 15minute time frame (at home), a valid passport, current drivers license, vaccinations, updated phone contact list (including attorney, lol), and at lease two solid opportunities for employment that are available immediately should something "happen". But then, I have been an entrepreneur most of my life, lol. By having my version of an emergency fund ready, I am assured I am only a plane ticket and short hotel stay away from starting another business anyplace I choose. So, my answer is...the amount is equal to the confidence you have in yourself to make money. __________________ "Think Less, Act More...Life is Short"

10-19-2009, 04:41 AM	#3
FinanciallySMART Member Join Date: Jul 2009 Location: Jamaica Posts: 88 Thanks: 0 Thanked 4 Times in 4 Posts Reputation: (14)	Emergency Savings is essential but one should not neglect his/her debt. What you can do is try and save a small amount each month and still pay the debt. For instance if you can only start with $20 then put it aside then it will become habitual you will be happy when you see the little that is add you. __________________ http://financiallysmartadvice.com http://www.financiallysmartonline.com,

Thread Tools
Show Printable Version Email this Page
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

Similar Threads
Thread	Thread Starter	Forum	Replies	Last Post
The Value of Emergency Savings	FinanciallySMART	Personal Finance	3	09-09-2009 07:34 AM
Using Roth IRA as Emergency Fund?	amyschiff	Personal Finance	26	02-23-2009 01:04 PM
Who has actually used their emergency fund? Tell us about it!	Ginger	Personal Finance	40	01-24-2009 01:11 PM
Frugal emergency preparedness	Bernadette	Frugal Living	14	07-30-2008 03:30 AM
Use Emergency Fund?	Finally_Frugal	Personal Finance	11	02-05-2008 06:48 PM

10-19-2009, 04:37 PM	#4
Philip Brewer Wise Bread Blogger Join Date: Jul 2007 Location: Champaign, IL Posts: 184 Thanks: 1 Thanked 6 Times in 4 Posts Reputation: (27)	There are several reasons to have an emergency fund. The big one is to tide you over a drop in income. If you have a lot of debt, though, even a large emergency fund can't protect you from an extended loss of income. For that reason, I suggest that people with a lot of debt go with a small emergency fund (something like 1 month's expenses, or $1000), and then apply all the money they can to reducing their debt. The reason not to have a big emergency fund is that it's expensive--the interest you're paying on your debt is much higher than the interest you're earning on your savings. So, the smaller the emergency fund, the less money you end up paying in interest (and the sooner you're completely out of debt). Carry that logic to its obvious conclusion, though, and you'd think that an emergency fund of $0 would be the logical choice--but that's not a good idea either. The reason is that there's a third class of problems that even a small emergency fund can help with--things like minor glitches in income and mismatches between the dates you get paid and the dates that your bills are due. If you have no emergency fund at all, something minor can leave you stuck with late fees or overdraft charges that can be really expensive. (I'm thinking about thing s like a payroll screw-up by your employer that delays your paycheck over a holiday weekend, or a lost check at your landlord's office that means you have to temporarily cover the rent twice this month.) I've written a post on exactly this topic: figuring the size of your emergency fund. A related topic, if you do accumulate an emergency fund is deciding when to use savings to pay off debt. Also related is managing your short-term money, which covers emergency funds, liquidity, and paying for your short-term goals.

10-20-2009, 08:54 AM	#5
dreamsandshadows Junior Member Join Date: Sep 2009 Location: NH Posts: 25 Thanks: 0 Thanked 0 Times in 0 Posts Reputation: (10)	Thank you for the advice all--this gives a good idea of what to do in my situation

11-19-2009, 10:35 AM	#6
Silver purse gal Junior Member Join Date: Nov 2009 Location: sunny California Posts: 3 Thanks: 0 Thanked 1 Time in 1 Post Reputation: (11)	I'm adding a postscript here, because this topic is so often neglected by people. First, good for you recognizing that you need an emergency fund! Since this fund is often for more than "emergencies" I prefer to call it "Comfort-cash". Like comfort food, it's there to support and soothe you during stressfull times. I would definitely start by saving all you can until you have about a month's worth of living expenses put away in a savings or money market account. Then split your monthly savings between 3/4 going to consumer (auto loans, credit card) debt pay down and 1/4 going to comfort cash fund until you build up at least 3 months of living expenses. Here's a link to a page on my website about emergency savings--the why, how and where. http://thesilverpurse.com/comfort-cash14.html Once you have that comfort-cash in place, you're a step closer to financial security and you'll sleep better at night Good luck!