Counting My Pennies

Baby, that’s a big emergency fund you’ve got there

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In a recent article on her website, Suze Orman discusses a change in her recommended credit card strategy.  This is one of the things I like about Suze Orman – her suggestions change based on the economic situation, and she understands that financial advice varies person to person.  The meat of her article is about how people with high credit card debt and not much savings shouldn’t work on paying off the debt and instead should pay the minimum and make it “top priority” to build up as much savings as possible.  Why?  Because the credit card companies don’t care about you, and with unemployment rising, it’s important that you have a way to protect yourself.  You could get your card paid off, and then the company could close your account for no reason.  Should you then lose your job, you suddenly don’t have a way to pay your bills.

Of course, I’m a firm believer in emergency funds.  But midway through, Suze drops a bit of a bombshell.  She recommends a fund to cover 8 months worth of expenses.  8 months!  I suppose I do have 8 months worth of expenses in savings, but that’s if I raid both the emergency fund and my savings account.  Of course, I can’t say that this is a bad idea.  A big emergency fund is never a bad idea.  But I admit, I have to wonder.  Just how long would it take to build up an 8 month emergency fund?
If I were starting from scratch, my first thought is that this would easily take over a year.  After all, I don’t make two months worth of expenses in one month.  But there are those three paycheck months that would help.  And while I categorize my deposit into my long term savings account an expense, it wouldn’t be part of the expenses while using the fund, so I could cut that out while working to build an emergency fund.  If I really had no savings at all, I guess I could also cut out my Roth IRA contributions.  I can’t imagine dropping my TSP contribution though – my agency matches 5%, which is essentially free money.  I don’t spend much on dining out, but cutting that down to one casual lunch a month would help, and cutting back to the bare minimum on groceries would certainly save money.
This has made me think again about my emergency fund.  I know that it has between 5 and 6 months of expenses, but that’s a rough estimate based on my normal monthly spending.  It’s probably closer to 7 months, if I think about the bare minimum of my expenses.  So perhaps 8 months isn’t all that crazy.  But it feels like a lot.
How’s your emergency fund?  Closer to the standard 4-6 months?  At Suze’s recommended 8 months?  More?

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Comments

  1. Currently only 6 mo (ignoring health insurance, but also unemployment). But i’m moving in june/july and then my expenses will go down making it 9 or more months.

    It took me about 2 full years to consider my emergency fund large enough that it wasn’t my top priority.

  2. Well … if my unemployment insurance money doesn’t start rolling in pretty soon, I’m going to get a chance to see how long my EF will really last. Theoretically, I have at least 6 months of expenses saved in the EF. In other savings, I probably have another 3 – 4 months worth. Of course, this isn’t covering Cobra. With my former employer, I didn’t have to pay for medical insurance, so Cobra is a new expense for me. I’ll probably only keep that for the first 9 months (until the 65% subsidy runs out) then try and see if I can find private insurance for a similar cost (or less.) Or, maybe I’ll have found a job again by then.

    With the way the job market is looking to me, I’m not so sure if all my savings will be *enough*. So, no, 8 months in the EF is not a whole lot to me.

  3. I think that’s a good point you bring up. It’s one thing to try to figure out how much to save. It’s another thing to decide what’s enough when you’re actually in the position to use it. From that point of view, no amount is big enough. Good luck! I’ll be following your blog to see how things go for you.

  4. Mine’s at about 7 right now, but maybe closer to 9 if we talk bare bones. If I cash in savings bonds and company stock (at today’s close), it’s up around 15 months. Seems like a lot, but not when you figure how long I’ve been working!

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