Five Real World Emergency Funds

zero day finance emergency fund

Emergency funds are the bedrock of financial success. Without an emergency fund, you cannot weather the majority of financial emergencies, even small ones like replacing your car’s tires. Last week I talked about how much money you need in your emergency fund. I found out that I need about $24,000 to protect me in the event of an emergency. I also polled Twitter and found that the majority of my followers had less than $10,000 in their emergency funds. Find out about how 5 other personal finance bloggers handle their emergency funds.

As a side note, all of these answers are taken directly from those mentioned. I didn’t edit their responses, so you are getting some awesome primary source emergency fund reading material!

Frugal Asian Finance’s Emergency Fund

We have an emergency fund of $10,000. We keep it in a checking account separate from our joint account so that we won’t have the illusion that we have a lot of disposable income to spend. I’ve thought about transferring it to a savings account, but the interest rate is minimal. I also like that we have a separate debit card for the fund in case we need it.

We also have a cushion amount of $5,000 in our joint account in case we need to cover a ‘near’ emergency situation such as home maintenance or car repair. The $5,000 may go up and down depending how much more cash I want to put towards the mortgage in a certain month. But the $10,000 always has to be there.

The emergency fund should be able to cover 3 months of our mortgage and expenses. We would love to increase it, but we need to balance the fund with other priorities such as the mortgage payment. There have been times when I wanted to put all of this money towards our mortgage principal payment. However, the thought of not having enough cash to cover a leaking roof or being homeless for failing to pay for mortgage really scares me.

We also don’t earn any interest on the $10,000 since we put it in a checking account for ease of use. I don’t want to forgo too much interest earning by putting a large amount of money in the emergency fund. $10,000 is also a good number since it should be able to cover a new roof if we need one.

Steveonomics’ Emergency Fund

Early in our FIRE journey we were worried about a stock market crash and had way too much cash. We would max out our retirement accounts but keep the rest in cash as we also considered buying a house in Silicon Valley. Last year we decided we didn’t want to buy a house anytime soon, so we invested over $100,000 into VTSAX and VTIAX. Luckily the market is up big since!

We spend about $2,500 a month and try to keep a six month emergency fund of around $15,000 although we have been considering letting it grow larger in case the housing market finally cools. We initially decided on six months being more than enough since we can easily live on a single income and could even live on unemployment income if need be.

All of our emergency funds are in bank accounts; local branches as well as Charles Schwab (no ATM fees globally) and Capital One 360 (high interest) online accounts. Convenience is more important to us than earning slightly higher interest.

She Picks Up Pennies’ Emergency Fund

Our emergency fund is just over $25,000. It would cover six months of expenses if we both lost our jobs. Seeing as we work on one-year contracts, it would be unlikely (though not impossible if another recession hits) for two teachers to lose their jobs simultaneously. We also wanted to make sure that our e-fund could cover the pricier parts of homeownership, like needing a new HVAC, roof, etc.

We also have a separate Baby Fund that we do intend to draw down during my unpaid leave, as opposed to using our e-fund. Currently, all of our savings is in a high-interest online account with Discover, earning 1.1% in interest. We also have a small taxable account with Vanguard. It’s essentially an experiment in risk tolerance for me, which is to say I have very little. One day, if I ever become less risk averse, we’ll move more savings over into that.

I suppose to give you more of the “why” part when it comes to the size of our e-fund, last year, we got in a hit-and-run accident, lost part of our roof and our entire shed, and had to replace the motor in our furnace and our AC unit in about six months.

Save Splurge Deny Debt’s Emergency Fund

Our emergency fund is currently around $14,000 dollars. It is higher than usual because we have been saving in it for some remodeling. Normally it sits around $10,000. My wife is a bit more risk averse than me so that has kept it at $10,000. We also have a toddler so that has affected the amount as well.

Ideally, we would want to cover any car expense, or hospital visit. This amount would cover the out of pocket maximum on my wife and child. My personal out of pocket maximum is $12,500, but we have some money in an HSA or a taxable investment account we could pull from. I have never had to write a check larger than $10,000 at one instant. We would be able to pull from other locations over time if the emergency was bigger than that.

Our fund currently is in a high yield savings account earning %1.00 interest. This keeps it 100% liquid for us if it is needed. Any money on top of that will go to the taxable account or towards planned expenses such as remodeling or our eventual car purchase. If an emergency required us to use some of those extra funds, well then they remodel would have to wait.

Our biggest issue would be multiple emergencies at once along with a job loss. We would drain a lot of our fund quickly, and have to tap into our investments. We would also mitigate the emergency by cutting back expenses and finding any paying job quickly. We continue to add those investments and would use them as a last resort safety valve. Hopefully they continue to grow for the long-term, but sometimes life is an asshole that doesn’t play along.

Life Zemplified’s Emergency Fund

My husband and I keep approximately 3 months worth of current expenses in an on-line savings account. I also keep a cushion of $1-$2k in our checking account to absorb minor emergencies or non-routine expenses. Since we are dual income and fortunate to be able to live on his income and save mine, we are comfortable with this amount.

I revisit the question of “is this too much or not enough “regularly. Yet, I’ve continued to keep the emergency fund at this amount as it seems the most practical for us. It’s sufficient to handle most costly events, while also being enough to seize an opportunity that might present itself. On the flip side, it’s not so much that I feel I’m missing out on earning significant returns elsewhere. Additionally, we know that we could tap other assets or resources in extreme emergencies if necessary.

Zero Day Finance’s Emergency Fund!

My emergency fund is currently sitting at $18,000. right now, it would cover about 4 months of expenses if I lost my job. My goal is to build this up to $24,000 so it will cover a full 6 months of expenses. If I ever lost my job, I could probably easily shave $1,000 of spending per month. I also would be able to find another job relatively quickly because I’ve diversified my skill set.

I also have about $25,000 sitting in my Roth IRA, of which about $20,000 are contributions. In an extreme emergency, I could withdraw this money. I would prefer to put expenses on one of my credit cards (or open a new 0% interest card) before withdrawing from my IRA, though.

My emergency fund sits in an online bank earning 1.3% interest. I also have a checking account with this bank as well. If I ever needed to access my e-fund, I would just transfer money from savings to checking and access it instantly.

Well, that’s it! You definitely have the tools to figure out what your ideal emergency fund should be, and how to store it. If you have any questions, let me know and I’ll help you out!

Good Hunting,

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12 Responses

  1. Lily He-Prudhomme says:

    Wow me and penny both have $25K+ as our fund. I was thinking of cutting it down to $20K. A quarter of $100K laying there at 1% sounds so wrong! ;(

    • David says:

      Agreed. The thing is, if you’re really lucky, then $20,000 becomes $22,000 on a 10% gain, compared to $200. So the opportunity cost of holding that money in a 1% APR savings account is $1,800 per year. Small in the short term, but very large in the long term.

      • Lance @ My Strategic Dollar says:

        This is so true! I think $25,000 in an emergency fund is probably more than needed. I’d cut it in half and put the difference in an index fund and let it grow! At least you could generate returns and still be able to pull it out if needed.

        • David says:

          $25,000 is pretty high for anyone who isn’t married and doesn’t own a home (basically me). I’ve got about $18k in mine right now. If I lost my job and needed to max out my health insurance plan and dental plan, I’d run out of money in about 4 months, but I could find another job in less than 1. For me personally, I’d rather feel safe than sorry.

          I do also aggressively invest in my 401(k) and IRA which I make sure to max every year. Right now, my e-fund is just a big bucket of cash for that and also my house downpayment fund.

  2. Brent says:

    Hi David,

    It was interesting to see the current emergency funds of the bloggers above. I still don’t know what the perfect emergency amount is for us, but right now we’re at $71,000, and soon to be $50,000 when our backyard work is all completed.

    My way of figuring out an emergency fund amount was to multiply our ‘monthly nut’ by 12. So we have a full year to regroup and make a new plan – and hopefully our new plan doesn’t include me working at a till saying, “Would like fries with that…”

    • David says:

      Hi Brent,

      $71,000 and even $50,000 are very large emergency funds. I obviously don’t know your specific situation, but it sounds like you want 12 months of expenses just in case. Multiplying your monthly spend by 12 is the exact way to calculate the proper emergency fund for you.

      What you might consider is building a tiered emergency fund so you lose less money to inflation. As an example, you might keep $25,000 in a high-yield online savings account like Discover (1.1% interest), build a $25,000 CD ladder using 12-24 month maturity CDs, and finally you might put $25,000 into a bond fund such as AGG. That way your average yield on your emergency fund might be 1.8-2% which would keep track with the most recent inflation.

  3. Courtney @ Your Average Dough says:

    Awesome post! This is something my husband and I go back and forth on a lot. Currently our emergency account is pretty small. The main reason is that my husband doesn’t like having the money sit in cash or equivalents earning a small return. It was interesting to see the different amounts bloggers have saved up and it is something that I plan on sharing with him. I would feel comfortable having around $1k a month or 12K in our emergency savings account, because like you noted above we have other fairly liquid (non retirement) investments that we could sell to free up cash if we needed too.

    • David says:

      Thanks Courtney! I wanted to get some more insight into how people structure their emergency funds, and the thought that goes into it.

      Have you considered building a CD ladder to help improve the return of your funds? The thing with having an e-fund in investments is that emergencies like a job loss tend to coincide with a market downturn, so your investments may decrease in value when you need them. Food for thought.

  4. Mr. Need2Save says:

    Our emergency fund has ‘morphed’ over the years. We currently have $40,000 in our emergency fund. Once our mortgage is paid off in about 3 years, we will drop our EF down to something like $20K to $25K.

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