Tuesday, 13 November 2007

How Much Do I Need For My Emergency Fund?

I was talking to my sister on the weekend about my long term goal to have $25,000 in an emergency fund, and she thinks I’m crazy! Not to have an emergency fund mind you, she thinks they are a great idea.

It’s just that she thinks that $5,000 would be more than enough for ‘any emergency you’re likely to encounter’. I should mention my sister and her husband are VERY good with their money, so her advice is something I take seriously.

I guess I may have been a bit gung ho with factoring a 12 month emergency fund, maybe the ‘traditional’ 3 month ($6,250) to 6 month ($12,500) version would be enough for me?

I've got 5 years of service coming up next month at work (for the second time at this company), which means I’d get at least 10-15 weeks severance pay if I was retrenched (again) plus get my long service leave paid out, which would be another 6 weeks or so. I’m not likely to quit in a huff or get fired; the company isn't going under any time soon, so I’m now a bit confused.

Oh and when I mentioned the ‘baby emergency fund’ my sister freaked! I've forgotten that not everyone speak in PF Blogger terms, and would know what I was talking about. I think she thought I was saving money in case I had a ‘baby’ emergency. She asked me to refer to it as a ‘starter’ emergency fund from now on.

Oh how I laughed.

What sort of emergencies should a 38 year old, single gal with no kids, no mortgage (renting) with full car, contents and health insurance plan for? Any suggestions? What are you planning for, 3, 6 12 months of expenses? Or salary?

A fully funded emergency fund is a couple of years away at least, so goodness knows why I’m obsessing now anyway, but a gal can dream can’t she?

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4 comments:

  1. omigod! a "baby" emergency fund! what a crack up! LOL! seriously I am crying with laughter!

    It's hard to decide how much, I am trying to get up to $2000 again, but if I weren't trying to pay out the mortgage early I would like to have a $10,000 EF.

    if you keep it somewhere that gets a good interest rate (like ING) and it is accessable then you can change your mind if you want to use some of it for investment later.
    I love the idea of $25,000 just sitting there earning money and available if I needed it, it would certainly give a nice feeling of security. are you thinking of buying a house down the track?

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  2. FinanceAndFat13/11/07 07:04

    Well, I'm still learning this stuff too, but my goal after paying off my credit cards is an emergency fund in the 3-6 months range. Haven't decided yet which end of the spectrum I will aim for. My current emergency fund is just $1,000, though I'm slowly adding to that at the rate of $25 per month.

    If a $25,000 emergency fund will make you sleep better at night, then go for it! Don't let other people tell you how much money you need to feel comfortable. I say go with your gut instinct.

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  3. louise - I know, it's hilarious isn't it? :-)

    I am planning to buy a property in the next 3-5 years, once the debt has been paid off and I've got a buffer in place.

    FinanceAndFat - Welcome! I'm really enjoying your posts, keep them up!

    It's not that $25,000 would help me sleep better at night, it just seemed like a nice juicy number! It's also 6 months salary, rather than 6 months of expenses, so I may have been a bit unrealistic.

    I'm thinking $10,000 might be a more realistic amount to aim for these days.

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  4. I am with you on this one. A 12 month emergency fund, if you can manage to save that much, is the perfect safety net. You never know what is round the corner & how long you may be out of work for, so it's a nice security to have it there.

    Well done!!!

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