How do you calculate amt for e-fund

iVillage Member
Registered: 12-13-2005
How do you calculate amt for e-fund
7
Tue, 12-13-2005 - 11:38am

I'm just wondering, how do you calculated how much you need in the e-fund?

I heard that you need 3-6 months worth of e-fund.

3-6 months of what?

My DH and I both work full time. We both make about the same amount.

Is it 3-6 months of:
1) One of our salary - on current standard of living
2) Both of our salary - on current standard of living
3) One of our salary - on reduced standard of living (just paying what need to be paid, no snowflakes, reduce eating out, entertainment, groceries, etc.-- barebones)
4) Both of our salary - on reduced standard of living

I am really confused as each of the amount would really be different. Of course this will effect the amount of money saved for e-fund vs. paying down debt.

iVillage Member
Registered: 08-08-2003
Tue, 12-13-2005 - 11:54am
3-6 months of your total living expenses, I think.



iVillage Member
Registered: 03-27-2003
Tue, 12-13-2005 - 12:17pm

I don't know that this will help you, but we don't yet have the 3-6 months, and we're not even working on it. Instead, we have $1000 in our e-fund, and the rest of our snowflakes go toward debt. We've been working on debt elimination for three years now, and in the home stretch--we expect to be completely paid off by or before the end of 2006.

I figure, if dh loses his job or whatever while we're still paying off debt, and the $1000 isn't enough, we'll end up back on CCs--but at least we have the credit available to do that. BUT, if he doesn't lose his job or whatever (most likely scenario), we'll have our debt paid off quicker.

Once the debts are paid off, the 3-6 months fund is just the amount that we'll have in a readily liquid fund. Once we have that much saved in a liquid account, we begin saving in other accounts (mutual funds, bonds, stocks, etc.). So the 3-6 months would probably be our 3-6 months salary, not expenses. But that's a matter of preference--once we're at that stage in our financial lives, we won't want to be in a position of having to cut back drastically because of minor setbacks like job losses (by that time, a job loss would be exactly that, a *minor* setback), so we would want the cash set aside to live on without making major sacrifices. But some people would rather not have that much sitting in a savings account and would rather be investing it, so 3-6 months basic living expenses would be sufficient.

The important thing is to set a goal based on your preferences and philosophy, and then make a plan to get there. What the exact goal is is a matter of preference.

Blessings,

Heather

Avatar for cl_beckymk
iVillage Member
Registered: 03-19-2003
Tue, 12-13-2005 - 1:47pm

I think it's really up to you.

Avatar for mahopac
iVillage Member
Registered: 07-24-1997
Tue, 12-13-2005 - 2:20pm

I would consider the emergency fund the amount of time it would take to find a new job or to cover a major expense (like the oil burner dying or the roof caving in - you can't wait for insurance to cover it, you have to lay out the money immediately for a new roof or oil burner).

If you and your husband are likely to both lose your jobs due to the same set of circumstances (i.e. you're both employed by General Motors), then you should have enough to cover 6 months of bare bones living expenses while you both find other jobs. If your jobs are governed by different circumstances, I would only put in as much as you think you would need to have available should the higher-paying spouse lose a job.

In my case, my HELOC is my emergency savings account. I have a pretty good line of credit already approved that I have not drawn on. It's enough to cover an emergency home repair, which is the only thing I can really think of that I'd have to lay out money for. I have disability insurance, car insurance, life insurance, and I'm not likely to ever lose my job. So I have less in emergency than most people would think was prudent.

Kelly

iVillage Member
Registered: 11-13-2004
Tue, 12-13-2005 - 2:52pm
I'm doing things a little differently. I'm working on an 8 month emergency fund. I calculated the amount based on my monthly expenses rather than my income. That way I know for sure that I am covered. I follow Suze Orman closely so I use her idea of an 8 month emergency fund. This works out good for me because I am a single mom and rely solely on my own income. Right now I am working on both saving and debt reduction. But like the other poster said, it is a personal decision.
iVillage Member
Registered: 10-10-2005
Tue, 12-13-2005 - 9:06pm
I think it's a highly individual thing. I don't have much of an emergency fund right now. I'm saving little by little and paying off some major debt but once the debt is paid off, I'm going to try and save up a years expenses. I hate the feeling of being out of control of my money and that would at least give me a comfort level if something happened that I had to be out of work for a long while.
iVillage Member
Registered: 08-19-2003
Wed, 12-14-2005 - 7:43am

Hey Heather,

I am sorta following Dave Ramsey's plan. But I really have mixed reviews about paying everything to the house and not putting into investing.

Are you going to pay off you house? Or just continue on the loan and invest your snowball?

Shannon


Pregnancy%20ticker