March 19, 2009 Leave a comment
I was reading Give Me Back My Five Bucks blog today where she posed the question about emergency funds and how much people have, what they would like to have and is it possible to have too much. Some people say 6 months salary, but the honest truth about my profession is that I’ll NEVER need more than 3 months. Even then that money would almost be wasted.
That isn’t to say that me being without a job is IMPOSSIBLE, just highly unlikely. If I CHOSE to leave without a new job to go to, then it is possible, but it is unlikely that I would be fired in such a way that I wouldn’t have 6 months to a year to find a new place to go. And with my skills, I would absolutely find something with in that time frame.
So the question for me then is: How much do I need? And: How much is too much?
I think that the answer is that I need as much money in an emergency fund that would equal how much credit I would want a credit card to have. Right now my credit card has a limit of $16. This is, quite honestly, too high in my opinion (but possibly only because I’ve maxed it out on non-emergency situations).
I think I would like enough such that if three big emergencies were to happen in the course of a one or two month period I would be able to cover them all. For instance, $5k in unexpected car repairs, $2k in vet bills and a family member passes away and I have to fly back. I imagine that $10K would be more than enough to do these things and still have enough left over to cover me if something bad were to happen before I could get the balance back up to the $10K mark. Also, $10K is a nice round number that seems to bring a lot of comfort.
However, this is my LONG TERM emergency fund goal. Until I get my credit card paid off (note: NOT the student loan) I think that enough to cover ONE emergency is sufficient. Thus, $2,000 is what I’d like to have before I lower the amount that I put in the emergency fund. Right now I’m putting $100/month into the EF, after I reach $2,000 I’ll probably start putting in somewhere between $25-40, and then put the remainder into the credit card. Then, when the credit card is paid off (in 4-5 years, YIKES) I can put all of my credit card payments into the E.F. till I reach the $10K mark. However, if forced to use the emergency fund, I’ll ramp back up the monthly deposits to $100/month again.
Another idea that I really like is having revolving certificates of deposits. So if I NEED the money I could get it that day or the next, but it would be at the same time making me some money. I think that $4k in the ING savings account would be sufficient and then ladder CDs every month with a value of $500 (for $6k total) would allow me to have access to the money in case of emergency and yet still provide me with some percentage of monetary gain.