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What do you think is the right amount of savings for an emergency fund (x months)?

winnietucker

Brilliant_Rock
Joined
Jan 4, 2019
Messages
1,777
My company announced layoffs are a possibility (well they’re basically asking people to quit) and it got me thinking...

I remember my mom getting laid off while heavily pregnant with my sister and then struggling to find a new job during the Great Recession. I remember my step dad taking another job because my mom couldn’t even get interviews for low-level positions.

I know the general rule of thumb is 6 months expenses and you should invest the rest. My husband wanted to do this but I said no, I want a year + a car (we sold a car when my husband got his company vehicle) in the bank before we stop saving and start investing heavily. We already have 401ks and IRAs - so it’s not like we’re not investing at all.

We live near Seattle and the car I want to save for is a BMW, so that’s a significant amount of money. Obviously, with us having no kids and both of us working, chances are we could stretch that savings for years if we had to. Our current savings is about 10 months of expenses and we could stretch that for about 4 years with one person working. But I can’t shake the feeling that it’s not enough saved.

I’m curious how other people feel about this and am throwing this out for discussion.
 

missy

Super_Ideal_Rock
Premium
Joined
Jun 8, 2008
Messages
43,760
I think a year makes sense. Anything more seems wasteful since your money isn’t working for you. So a year in liquid assets and the rest invested. That’s how we do it.
 

winnietucker

Brilliant_Rock
Joined
Jan 4, 2019
Messages
1,777
I think a year makes sense. Anything more seems wasteful since your money isn’t working for you. So a year in liquid assets and the rest invested. That’s how we do it.

I like one year. It feels very safe. 6 months feels like too. Plus I think it’s better to be a little over prepared than underprepared.
 

Bron357

Ideal_Rock
Premium
Joined
Jan 22, 2014
Messages
4,913
Agree, a years worth of money that covers all living expenses is plenty.
As for buying a car...... a car is never an investment (unless it’s something rare, collectible and is never driven).
A new car loses essentially 90% of its value over 10 years plus you have continual expenses of registration, insurance and servicing plus petrol. So you buy a car to use and enjoy but it is a diminishing asset (unlike say a diamond ring, no amount of looking at it “wears it out” ha ha).
 

winnietucker

Brilliant_Rock
Joined
Jan 4, 2019
Messages
1,777
Agree, a years worth of money that covers all living expenses is plenty.
As for buying a car...... a car is never an investment (unless it’s something rare, collectible and is never driven).
A new car loses essentially 90% of its value over 10 years plus you have continual expenses of registration, insurance and servicing plus petrol. So you buy a car to use and enjoy but it is a diminishing asset (unlike say a diamond ring, no amount of looking at it “wears it out” ha ha).

Def agree on the car. My thought was that’s husband’s company car is dependent on him working there and if that’s ever to abruptly end he’d have to turn that car in ASAP and we’d probably need two vehicles because public transit isn’t that great in our area since we’re not actually in the city. Figured it’d be better to aim for the vehicle I really want.
 

joelly

Ideal_Rock
Joined
Apr 21, 2009
Messages
2,364
I think a year makes sense. Anything more seems wasteful since your money isn’t working for you. So a year in liquid assets and the rest invested. That’s how we do it.

I’m like @missy

A year of expenses in cash then the rest is invested. So a year expenses plus a car, yes you can stretch that out for yrs if one out of two continues working.
 

MelloYello8

Shiny_Rock
Joined
Jul 6, 2018
Messages
318
If I was worried about layoffs I would definitely want to save more in liquid accounts. That said we have way less than a year of expenses in savings because we just siphoned off our savings accounts to make a major investment in cash. We are comfortable with that because we each have very stable full time jobs and sources of passive income that we usually reinvest but could cover the bulk of our monthly expenses if need be.
 

lala646

Shiny_Rock
Joined
Nov 4, 2018
Messages
340
My investment advisor really pushed me to hold no more than 6 months expenses liquid, but I balked at that. It just wouldn't have been a comfortable position for me. So I stuck with 1 year, and now that I'm Covid-furloughed, I'm happy I listened to my gut, even though I haven't had to touch my savings yet. We own our apartment and vehicles, and don't have children, so our overhead is pretty low. Plus, my husband's job is stable.
 

Aerielle Max

Rough_Rock
Joined
Oct 12, 2017
Messages
54
If I was worried about layoffs I would definitely want to save more in liquid accounts. That said we have way less than a year of expenses in savings because we just siphoned off our savings accounts to make a major investment in cash. We are comfortable with that because we each have very stable full time jobs and sources of passive income that we usually reinvest but could cover the bulk of our monthly expenses if need be.

Agree with more liquid accounts especially in times we cant foretell just like this pandemic.
 

AllAboardTheBlingTrain

Brilliant_Rock
Joined
Apr 22, 2020
Messages
975
I personally feel okay with 6 months of expenses in liquid as a minimum, the rest invested, since I could use some of my investment income to offset expenses as well, and I also have other savings goals that could be used to offset expenses, but if I had kids I’d probably want more than 6 months (closer to a year) in liquid.
 

MelloYello8

Shiny_Rock
Joined
Jul 6, 2018
Messages
318
I personally feel okay with 6 months of expenses in liquid as a minimum, the rest invested, since I could use some of my investment income to offset expenses as well, and I also have other savings goals that could be used to offset expenses, but if I had kids I’d probably want more than 6 months (closer to a year) in liquid.
Maybe we are in the same boat. Our investment income is enough to cover mortgage, utilities and food, and we couldn’t have made those investments if we always kept a year of liquid savings. There is an opportunity cost to hoarding cash too.
 

Cerulean

Brilliant_Rock
Joined
Sep 13, 2019
Messages
1,147
Man, I am waaaaay behind other posters, hah! Most of America is too, even in middle class income brackets.

Being a 30yr old millennial, student loan debt just crippled my husband and I financially. Even with incredible scholarships, I will have tallied up about $220k for bachelors and masters.

Husband had about $135k for BA + MA, and got a great deal on state tuition for undergrad due to parents being on disability. It is appalling honestly...

We hit a financial landmark and made it to $100K in debt this past year and celebrated!

6 months seems very reasonable, but like an absolute pipe dream for us right now.
 

lala646

Shiny_Rock
Joined
Nov 4, 2018
Messages
340
@Cerulean That's no joke. The greatest gift my parents ever gave me was paying for my education. I went to an affordable state school, had a ton of scholarships, lived in cheap off-campus housing, and worked nearly full time my last 2 years, and it was STILL expensive. But not being saddled with student loans was like starting the marathon on mile 25. I was able to start saving and investing, though quite slowly at first, as soon as I got a job out of college. Erasing student debt would truly be a great stimulus to the US economy.

Also, congratulations!! You guys have made incredible progress!
 

MRBXXXFVVS1

Brilliant_Rock
Joined
Dec 5, 2019
Messages
912
My financial advisor recommended keeping 2 years of expenses set aside if I decide to be a stay at home mom. The bank we got our mortgage through required 18 months of payments in cash (not stock).

Are you able to live off DH's income if you get laid off? Since you think you might get laid off, I'd definitely recommend selling some of your stocks as the market is high (if there aren't too many capital gains taxes). I'd also recommend updating your resume and beginning your job search now. I've found even with jobs I've gotten, it takes about 4 months from application to start date. Lastly, if you get laid off, I'd recommend negotiating a severance and applying for unemployment benefits right away.
 

winnietucker

Brilliant_Rock
Joined
Jan 4, 2019
Messages
1,777
Man, I am waaaaay behind other posters, hah! Most of America is too, even in middle class income brackets.

Being a 30yr old millennial, student loan debt just crippled my husband and I financially. Even with incredible scholarships, I will have tallied up about $220k for bachelors and masters.

Husband had about $135k for BA + MA, and got a great deal on state tuition for undergrad due to parents being on disability. It is appalling honestly...

We hit a financial landmark and made it to $100K in debt this past year and celebrated!

6 months seems very reasonable, but like an absolute pipe dream for us right now.

Congrats to you on your progress!

The cost of getting a masters is insane... I’ve been considering going back to school but have a hard time justifying the cost since I’d prob stay with my company and they won’t pay me more... I keep reading you can get your company to pay for it but neither my husband nor myself have had success there. Even though both companies are willing to pay for other silly trainings and my husband’s company is also willing to fly him out to CO to do the trainings they want him to do.

My financial advisor recommended keeping 2 years of expenses set aside if I decide to be a stay at home mom. The bank we got our mortgage through required 18 months of payments in cash (not stock).

Are you able to live off DH's income if you get laid off? Since you think you might get laid off, I'd definitely recommend selling some of your stocks as the market is high (if there aren't too many capital gains taxes). I'd also recommend updating your resume and beginning your job search now. I've found even with jobs I've gotten, it takes about 4 months from application to start date. Lastly, if you get laid off, I'd recommend negotiating a severance and applying for unemployment benefits right away.

Oh no I’m not at risk to be laid off. If they do it the way they said they would, a lot of of people would get laid off before I would. My department brings in a lot of money as well, so I think that’ll insulate us from that risk even further. It was more something that popped up in my mind as a question. But yes - we def could live off my husband’s income alone. It would be tighter than I like but we were broke college kids not too long ago, we can live that way again with little adjustment.
 

Cerulean

Brilliant_Rock
Joined
Sep 13, 2019
Messages
1,147
@Cerulean That's no joke. The greatest gift my parents ever gave me was paying for my education. I went to an affordable state school, had a ton of scholarships, lived in cheap off-campus housing, and worked nearly full time my last 2 years, and it was STILL expensive. But not being saddled with student loans was like starting the marathon on mile 25. I was able to start saving and investing, though quite slowly at first, as soon as I got a job out of college. Erasing student debt would truly be a great stimulus to the US economy.

Also, congratulations!! You guys have made incredible progress!

I really appreciate it! I wish any of our parents were in a position to support enough. It's crazy how much costs have gone up in the last few years.

I worked part-time or full-time throughout as well - I shudder to think what it would have been without that!

Friends who went to medical or law school have 200-400k....insane.

Totally agree RE erasing student loan debt...
 

Cerulean

Brilliant_Rock
Joined
Sep 13, 2019
Messages
1,147
Congrats to you on your progress!

The cost of getting a masters is insane... I’ve been considering going back to school but have a hard time justifying the cost since I’d prob stay with my company and they won’t pay me more... I keep reading you can get your company to pay for it but neither my husband nor myself have had success there. Even though both companies are willing to pay for other silly trainings and my husband’s company is also willing to fly him out to CO to do the trainings they want him to do.



Oh no I’m not at risk to be laid off. If they do it the way they said they would, a lot of of people would get laid off before I would. My department brings in a lot of money as well, so I think that’ll insulate us from that risk even further. It was more something that popped up in my mind as a question. But yes - we def could live off my husband’s income alone. It would be tighter than I like but we were broke college kids not too long ago, we can live that way again with little adjustment.

Yeah it is totally unrealistic to expect companies to pay....it does happen, but it is really unlikely in a lot of industries unfortunately. I see it in articles or posts all the time as a feasible option...not fair to give false hope to people!

In my domain, I basically need to have an MS to progress up the ranks professionally...it's a real Catch 22!

Glad your job isn't at risk at all! I bet that is a relief.
 

AllAboardTheBlingTrain

Brilliant_Rock
Joined
Apr 22, 2020
Messages
975
Man, I am waaaaay behind other posters, hah! Most of America is too, even in middle class income brackets.

Being a 30yr old millennial, student loan debt just crippled my husband and I financially. Even with incredible scholarships, I will have tallied up about $220k for bachelors and masters.

Husband had about $135k for BA + MA, and got a great deal on state tuition for undergrad due to parents being on disability. It is appalling honestly...

We hit a financial landmark and made it to $100K in debt this past year and celebrated!

6 months seems very reasonable, but like an absolute pipe dream for us right now.

I’m sorry, HOW much does school cost in the US??? This is just beyond any reasonable barometer of insane, holy crap. I hope the US does something about the price of education - this kind of backbreaking debt is crippling the economy. Best of luck to you and your husband and congratulations on paying off 250k of debt already!
 

maryjane04

Brilliant_Rock
Joined
Nov 21, 2013
Messages
683
Man, I am waaaaay behind other posters, hah! Most of America is too, even in middle class income brackets.

Being a 30yr old millennial, student loan debt just crippled my husband and I financially. Even with incredible scholarships, I will have tallied up about $220k for bachelors and masters.

Husband had about $135k for BA + MA, and got a great deal on state tuition for undergrad due to parents being on disability. It is appalling honestly...

We hit a financial landmark and made it to $100K in debt this past year and celebrated!

6 months seems very reasonable, but like an absolute pipe dream for us right now.

I really appreciate it! I wish any of our parents were in a position to support enough. It's crazy how much costs have gone up in the last few years.

I worked part-time or full-time throughout as well - I shudder to think what it would have been without that!

Friends who went to medical or law school have 200-400k....insane.

Totally agree RE erasing student loan debt...

Wow! Just wow! How does anyone afford to study over there? This is an absurd amount! On top of other things like buying a house etc.

As for medical or law graduates - well I guess they can make that money back in their profession?

You have done so well to pay off a huge chunk of that debt! Here in Australia, we have the government give us loans for our study. My 4 year undergraduate came in at just under 40k. Luckily my masters was paid for by my graduate program. It has taken me a few years and I still have 17k left to pay (and that just comes out of my taxes). So I have so much respect for you to pay down that much of your student loans so quickly.
 

LilAlex

Brilliant_Rock
Premium
Joined
Mar 3, 2018
Messages
781
I know the general rule of thumb is 6 months expenses and you should invest the rest. My husband wanted to do this but I said no, I want a year + a car (we sold a car when my husband got his company vehicle) in the bank before we stop saving and start investing heavily. We already have 401ks and IRAs - so it’s not like we’re not investing at all.

We live near Seattle and the car I want to save for is a BMW,

There is no right answer. It depends upon your wealth and how liquid and stable your taxable investments are and how employable you are and how lucrative your career, etc (how fast you could replenish it). People with lots of assets have no "emergency fund." We are not wealthy but we have no real emergency fund -- enough short-term bonds in our taxable asset mix that we can sell at any time (need a new roof, etc.) and not take too big a hit. My twenty-something kids (age, not number!), OTOH, are 95% equity (stocks) in their Roths and investment accounts. They need an emergency fund so they are not forced to sell after a 50% market drop. I know they use high-yield savings or muni money markets for their emergency funds, which now pay almost nothing of course.

In a household, both halves of the couple need to sleep so the more conservative approach of the two is usually the "right" one. Market has never been higher and the economy has almost never been worse. That means the corporate world is better than ever at making money without employing people.

This is a great time to start investing if you never have. Every time is a great time. But if he is thinking of making a giant lump-sum investment (using your e-fund) with the market at an all-time high and the country at an all-time low, I think he is foolish. It's time in the market, not timing the market. At least dollar-cost average every month (like you do in your tax-deferred).

Ask on Bogleheads.org. NOT on reddit.
 

winnietucker

Brilliant_Rock
Joined
Jan 4, 2019
Messages
1,777
There is no right answer. It depends upon your wealth and how liquid and stable your taxable investments are and how employable you are and how lucrative your career, etc (how fast you could replenish it). People with lots of assets have no "emergency fund." We are not wealthy but we have no real emergency fund -- enough short-term bonds in our taxable asset mix that we can sell at any time (need a new roof, etc.) and not take too big a hit. My twenty-something kids (age, not number!), OTOH, are 95% equity (stocks) in their Roths and investment accounts. They need an emergency fund so they are not forced to sell after a 50% market drop. I know they use high-yield savings or muni money markets for their emergency funds, which now pay almost nothing of course.

In a household, both halves of the couple need to sleep so the more conservative approach of the two is usually the "right" one. Market has never been higher and the economy has almost never been worse. That means the corporate world is better than ever at making money without employing people.

This is a great time to start investing if you never have. Every time is a great time. But if he is thinking of making a giant lump-sum investment (using your e-fund) with the market at an all-time high and the country at an all-time low, I think he is foolish. It's time in the market, not timing the market. At least dollar-cost average every month (like you do in your tax-deferred).

Ask on Bogleheads.org. NOT on reddit.

We’re late 20’s and most of our investments are stocks - I read that at our age it’s what you should do because you’re young enough to bounce back. I know you can withdraw your IRA contributions penalty free but I have a mental block there. I’m my head it’s earmarked for something so no touching. We also have 6 bank accounts for this reason though, so that’s definitely just a me problem. TBF - I know we could cut back the savings and we could do 401k loans where we’d essentially pay ourselves the interest but I need that bad boy to grow. I got big dreams of retirement in my 50’s without much sacrifice. Or at least the option to. That’s been my goal since I was a teenager. I prefer to retire with my husband though, but he’s a workaholic and I don’t think he’d retire early.

Thanks for the website suggestion! I don’t like Reddit’s Personal Finance subreddit too much.
 

LilAlex

Brilliant_Rock
Premium
Joined
Mar 3, 2018
Messages
781
We’re late 20’s and most of our investments are stocks - I read that at our age it’s what you should do because you’re young enough to bounce back. I know you can withdraw your IRA contributions penalty free but I have a mental block there. I’m my head it’s earmarked for something so no touching. We also have 6 bank accounts for this reason though, so that’s definitely just a me problem. TBF - I know we could cut back the savings and we could do 401k loans where we’d essentially pay ourselves the interest but I need that bad boy to grow. I got big dreams of retirement in my 50’s without much sacrifice. Or at least the option to. That’s been my goal since I was a teenager. I prefer to retire with my husband though, but he’s a workaholic and I don’t think he’d retire early.

Sounds like you're doing great!

Yes, even pre-COVID, legislation has been increasingly moving in the direction of letting you steal from your tax-deferred savings. Not a good thing, as you point out.
 

Daisys and Diamonds

Ideal_Rock
Joined
Apr 30, 2019
Messages
8,854
From experience id say twice as much as you think you need
Factor in unexpected bills not just regular experiences
Vet bills, plumbing and electoral bills are not cheap
Think about insurence for that Beamer
Its all stuff that bogs you down when you are on a reduced income
Its much harder than you ever imangine it would be to dramatically downgrade your lifestyle because of lack of cash and it is no fun
 

Cerulean

Brilliant_Rock
Joined
Sep 13, 2019
Messages
1,147
Wow! Just wow! How does anyone afford to study over there? This is an absurd amount! On top of other things like buying a house etc.

As for medical or law graduates - well I guess they can make that money back in their profession?

You have done so well to pay off a huge chunk of that debt! Here in Australia, we have the government give us loans for our study. My 4 year undergraduate came in at just under 40k. Luckily my masters was paid for by my graduate program. It has taken me a few years and I still have 17k left to pay (and that just comes out of my taxes). So I have so much respect for you to pay down that much of your student loans so quickly.

That is awesome about gov't support...I wish the US had anything like it.

What is challenging about medical / law - is that even with stellar incomes, many of them have no hope to repay because initial income is low, and interest is compounded daily and interest rates are average 7% (private lenders, much higher)....400k can balloon over 1mil really fast before they reach six figure salaries...very sad

Long story short, so I don't derail this thread too much, I expect student debt to be a major issue for the American economy with serious consequences. Many of my peers have no ability to buy houses or even cars right now.

I also had about $25k of debt for uninsured medical care which I am almost done paying off! :wall:I feel lucky that we are able to pay off our loans so aggressively. My husband is a great financial planner - about 60% of our income goes to debt!!!
 

Cerulean

Brilliant_Rock
Joined
Sep 13, 2019
Messages
1,147
I’m sorry, HOW much does school cost in the US??? This is just beyond any reasonable barometer of insane, holy crap. I hope the US does something about the price of education - this kind of backbreaking debt is crippling the economy. Best of luck to you and your husband and congratulations on paying off 250k of debt already!

My tuition was ~45k a year for undergrad, not including living expenses in NYC / Chicago
Now tuition in 2020 for undergrad (again, does not include room and board) for top schools can be 60k+ a year
Total for a Master's at a top program can range a lot...low end is 50k, top end is 150k+
 

AllAboardTheBlingTrain

Brilliant_Rock
Joined
Apr 22, 2020
Messages
975
My tuition was ~45k a year for undergrad, not including living expenses in NYC / Chicago
Now tuition in 2020 for undergrad (again, does not include room and board) for top schools can be 60k+ a year
Total for a Master's at a top program can range a lot...low end is 50k, top end is 150k+

Oh my God, that’s a lot. o_Oo_O Really impressed with how you and your husband have managed your repayments! I think the interest rate (as you mentioned earlier) is the real killer that makes the debt so out of control.
 

beatricecrummles

Rough_Rock
Joined
Mar 25, 2020
Messages
21
My tuition was ~45k a year for undergrad, not including living expenses in NYC / Chicago
Now tuition in 2020 for undergrad (again, does not include room and board) for top schools can be 60k+ a year
Total for a Master's at a top program can range a lot...low end is 50k, top end is 150k+

:roll::-o:oo_O That is so high so obviously a lot couldn't afford to go to college and universities.
 

missy

Super_Ideal_Rock
Premium
Joined
Jun 8, 2008
Messages
43,760
Man, I am waaaaay behind other posters, hah! Most of America is too, even in middle class income brackets.

Being a 30yr old millennial, student loan debt just crippled my husband and I financially. Even with incredible scholarships, I will have tallied up about $220k for bachelors and masters.

Husband had about $135k for BA + MA, and got a great deal on state tuition for undergrad due to parents being on disability. It is appalling honestly...

We hit a financial landmark and made it to $100K in debt this past year and celebrated!

6 months seems very reasonable, but like an absolute pipe dream for us right now.

It's a crime IMO how much education costs in the USA.
To saddle young adults with that kind of crippling debt is unacceptable.
 
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