I was just reading an article in Money magazine based off a poll asking their readers how much they had in emergency savings. It didn’t seem to be a very “scientific” poll, but I was very surprised by the results.
According to their survey, 37% of the responses indicated they had more than 6 months of expenses in an emergency fund! Another 19% had 3-6 months, 22% had less than 3 months, and another 22% had none.
If you have been around a bit you know that I am a big fan of emergency funds and think they are a tool to protect against unforeseen circumstances, but also a tool to increase savings.
But anyway, if you are interested in participating, it would be nice to see if Money Mag’s results are comparable.
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Currently, we’re building our emergency fund back up to $1000. We are working through Dave Ramsey’s system. Once we get our debt paid off, we’ll save 3-6 months income back in case of loss of my job.
Bob – Those figures seem off to me as well. Their readership probably skews toward the wealthy. In December of 2008, I worked with the market research firm Synovate to survey a representative sample of U.S. households on the same topic and came up with very different results. To see the numbers, follow this link (http://bit.ly/Y5k01) and click on the Tough Times news release.
I read the same article and was just staring at it thinking that can’t possibly be true. Myself I have the $1000 starter emergency fund, scrubbing off the debt and should be 6 months worth come September 2010.
Sounds skewed towards those that read Money–most likely middle to upper middle class folks who are financially responsible or are committed to getting there. Plus, how are those numbers? We probably only have 4 months of living expenses in our emergency fund, but that’s with our current budget. If we ever needed to dip because of job loss, etc, we could easily slash a lot of fat off our current expenses and end up with close to 8 months of fat-free emergency money. Of course, we’re adding to it, but just another calculation that could skew the numbers.
I agree… In my county and community I know a few families with emergency funds, but many have none at all.
From January until May, my husband and I kept at least $1000.00 in our emergency fund. He had a sudden heart attack on Memorial Day, and we needed the fund in the following days. We were so glad we had set that money aside.
Hubby is doing really well and is back at work part-time, so our goal now is to build the $1000.00 back up and continue paying off our debts. Eventually we want to save the 3-6 months living expenses for the fund.
In March of this year my wife and I were sitting on a 6-7 months emergency fund. Just as April began we got a hard test from Murphy showing us just how important this emergency fund was.
We had a water line break in our master bath. We ended up needing to gut the bathroom and had some major pipe work done. As they were finishing up with the pipe work we found that our sewer system was making a mess under our house as well.
All said and done we are now down to about a 2-3 month emergency fund and are in the works of building it back up and finishing the bathroom.
The best thing of it all was watching how calm and settled my wife has been during this knowing that financially we are still in a very good position and this didn’t ruin us.
We will bounce back!
I don’t have an emergency fund. I’d like to start one, but I think I’m going to start one in some sort of a savings account with a decent interest rate such as ING or E Trade.
@ Brad, and others
If your looking for a place with good interest rates right now, don’t bother, there isn’t much out there anymore. However, if your still interested in doing the research for 2% or so, then try the link below.
http://www.fatwallet.com/forums/finance/783099/
It’s a lot of info, but if you look at the chart there, it always keeps the highest interest rates at the top. Just be careful with any weird requirements, like no interest until balance is $100K or weird fees.
Oh, I forgot to actually comment on the article.
One of the first things my wife and I did when we got married was to pool our resources, which initially gave us a few months savings anyway. We then set out work retirement contributions to 10% gross, opened two Roth IRAs and started maxing them out. Then, we put away about 8 months of living expenses. After that, we started aggressively paying down debt. That’s where we are right now, and it has worked well. I’d be very, very, very nervous if I only had $1000 in emergency savings. Our expenses tend to fluctuate enough when emergencies come up, that often we will use the emergency fund as a cushion. If someone needs help, or there is a missions offering at church, we give a lot to things like that, and sometimes it won’t fit in the monthly budget. We always find a way to make it work though. When we bought our car (we had to have it), we did hit our emergency fund for a large down payment ( a couple months expenses). But, we replaced that amount, plus a little bit, then started getting rid of the rest of the car loan. When I take money out of my savings, it’s like a loan to me, I always owe that account how much I took out, plus some. Occasionally, I’ll put some surplus into the savings account, just to offset inflation and increases in cost of living and such.
Our goal is to have 6+ months of expenses in a liquid account, seperate from other accounts.
We paid off debt this year with a $1,000 emergency fund which made me nervous. Hardest part of paying down debt was reducing savings and paying off debt. Now I am at peace with that decision as being debt free is wonderful.
We didn’t have an emergency fund for a long time, but when we did have the opportunity to start one, we really funded it properly. I keep two cash emergency funds as well. One is in the form of $350 that I always keep in my wallet. I think it’s a good idea to have a decent amount of money around if you have kids. You never know what is coming up.
Just because they have an “emergency fund” doesn’t mean that they are debt free. I have a feeling that many of those who responded still have credit card balances, car payments and possibly student loans.
I am on the high end of the survey, but I also fit the ‘Money’ demographic – 50+, professional level job. I’m also single (widowed and there was very little insurance due to my late husband’s health issues), so I feel that I need to keep a larger efund than someone with access to two incomes and more flexible cash flow.
@ Matthew,
That assumption is very correct. Not everyone believes in the ramsey program, or at least thinks its the best idea. I’ve had emergencies that I needed more than $1000 to cover. Thus, we started building a 6-ish month e-fund first. Then, when we were comfortable we could live if we lost a job, or got sick, or something like that, we started to aggressively pay down debt. I would be scared to death if I only had an efund of $1000. I generally don’t ever like my everyday checking account to fall below that balance, just in case.
Just to clarify. The Ramsey program does state that if you have a storm on the horizon (employment is in question) then you put the plan on hold and pile up cash. Dave has said this on his show many times.
Julio,
Good to know, since I obviously don’t fully know the Ramsey plan. I suppose that’s an OKAY way to see things. I’d submit however, that one is almost always at risk of getting at last some rain, if not a hurricane. You never know, all the more reason that I’m a little more conservative, and like to have a pile of cash on hand. However, as time progresses, I like debt less and less. By the time I’m done, I may very well find that I’ve depleted most of my reserves in favor of paying down debt. I’m just not comfortable doing that all right now.