Your Emergency Fund Is Missing The Mark

[@michaelswami]

Erin: I have a thought I wanted to share. I had to travel out of state with family to attend the funeral of a cherished relative on a holiday weekend. It was expensive as it was on short notice. My emergency fund allowed me to make these arrangements without going into debt. People need to think about one offs such as this when thinking about emergency funds.

[@radiok2ua]

In my opinion, emergency fund levels also need to be adjusted for marital/family status, age, and debt. When I was young, debt-free, and single, and making a good income, I didn't feel the need for an emergency fund so I started investing as much as I could. Hit the company match, plus as much pretax as I could. As I got older and got married, we bought a house and started a family, and so forth, things got more expensive and emergencies did as well. Having access to cash (not credit) is much more important. But I am SO glad I started investing first, and didn't worry about building a large emergency fund, because now as I am in the later years of my career that money I invested has worked for me for more than 35 years and will give me the flexibility to retire earlier than I had expected, if I so choose.

[@RandomJane104]

I am 50 and have never had what I would consider to be a traditional emergency fund sitting in cash in a bank. I have always considered my brokerage account to be my emergency fund (for job loss or major catastrophies) because a good portion of it is invested conservativly. I don't want $30k making only 2 to 3 percent (typically). I do have a sinking fund in a high yield savings account (fluctuates between $7k - $14k) for regular short-term expenses like property taxes, vacation savings, and things like car repairs and vet bills. I only started that about 7 years ago. I probably did it backwards, but I think it was the right way for me. Raiding a brokerage account is more painful, so I think it forced me to be more careful with my finances.

[@mikepiper6077]

The bigger Emergenvy fund the better.. Having the investopedia 31,000 plus a good idea. Life is full of unexpected financial challeges. 15 % minimum going to long term investments while building the emergency fund also great idea. To achieve both requires living way below your means.

[@blackdynamite4174]

I AGREE, 2.5 YEARS 45K..MY GOAL.

[@stewdogg42]

I have Savings Account PTSD. I need more than the recommended emergency savings amount so I can sleep at night. I have 12 mos of living expenses saved in my emergency savings currently.

[@jeffkline9191]

I agree. I have about 1.5 years.

[@EC-cm8sf]

I do 12 months too. I don’t feel bad at all because it’s earning 5% currently.

[@kennethroyer9949]

I also found for myself and others with a larger savings - [I hold 2yrs] - the thought of tapping any of my investments becomes a non event! Plus if the market sells off I have some extra dollars to invest at lower prices.

[@jezzarisky]

I have seen many people with paid off cars sort of assume their car costs go down(as in they only think they have gas and car insurance to pay for), but often neglect the major costs that come after several years of ownership, namely: maintenance, repairs, and depreciation/new car fund. While funding a new car/offsetting depreciation can be delayed several months, maintenance and repairs can happen at anytime and do generally need to be taken into account as part of an emergency fund unless one is able to to either go without the car(have multiple cars, or can carpool/public transit/bike). It would be a big issue to get blindsided by having several thousand in unexpected repairs come up and eat into an emergency fund one is hoping will last x number of months.

[@shawnpatton3795]

How often do people that own a new/newish vehicle for 10 years end up spending thousands of dollars on repairs?

[@scottthomas1894]

Another excellent video Erin. I so enjoy watching your channel. Being retired gives me plenty of time. My monthly expenses are about $6500. I have a guaranteed monthly income of $10,000 (which is made up of my survivor benefit from my wife’s social security-I will switch to my social security when I turn 70 in two years and it should be about $5,000 a month-and my immediate annuities that I purchased last year when the interest rates were so high). This covers all of my expenses, even allowing me to save at least $2000 a month. Nonetheless, I still maintain an emergency fund that covers 2 years worth of my expenses. I hope you have a great Labor Day weekend.

[@victorbaird8220]

You have a beautiful mustache

[@thedude5040]

I wasn't aware social security paid so well. I call BS!

[@johnurban7333]

@@thedude5040actually going by your best 35 years, if he made a good living, he’s probably going to get that much

[@scottthomas1894]

@@thedude5040 check out the amount for the maximum social security at age 70 in 2024. It is $4873. I have 2 more years until I turn 70. Assuming a 2% COLA each of those years comes to $5070 per month. Based on my earnings history I will receive the maximum amount payable. That’s where I got the $5000 figure in my additional comment.

[@scottthomas1894]

@@thedude5040 The maximum social security payment at age 70 in 2024 is $4873. I have 2 years until I turn 70. Assuming a 2% COLA each of those years comes to $5070 a month in 2026. Based upon my earnings history, I will receive the maximum payment. That’s where I got the $5000 figure. You should do your research before you reply to a comment. I was an attorney for over 40 years and paid in the maximum amount every year.

[@kennethroyer9949]

Here's my method: checking account 3 months savings → 3 months HYSA → 1.5 yr Vanguard short term bond fund → Excess to Vanguard Wellesley Income Fund and Roth IRA same fund with Vanguard. Plus I automate this approach as much as possible. Those mutual funds I use not investment advice. I do the 401k match at work only; their fees are way too high. Too much in savings??? Ask the folks who live in Ashville NC they just might have a different opinion!

[@blackdynamite4174]

I Like it, Strong work.

[@niebieskimotyl3308]

Doesn't make sense to have 3 mo in checking account, 1 month is really enough, and HYSA can be accessed instantly, so there can be 5 mo fund. Other than that, retirement and onother HYSA for savings for car repairs, home repairs etc., which can be used in case of emergency as well if something breaks earlier than planned repair

[@kennethroyer9949]

@@niebieskimotyl3308 When you are just starting out in life I understand playing things a little looser. For me I'm much older and 3 months in checking is now very small as compared to liquid net worth. Also the 3 months in checking takes care of most minor and mid range emergencies such as a couple of years ago had to purchase new refrigerator. This way I rarely touch any interest earning accounts and continue to save. In other words it works for me. Thanks for the feedback!

[@nfrank99]

Nice work, as usual, Erin. Your content is always down to earth and relatable regardless of a person’s sophistication on budgeting and financial matters. It’s kind of sad but all too true that even basic topics like an emergency fund can’t be discussed and repeated often enough. I hope younger people who are earlier in their careers find and watch your videos. I’ll certainly recommend you to my nieces and nephews.

[@Laz_RS]

I typically have long stretches in between jobs, so my emergency fund is probably larger than what's considered "correct". To help lessen the inflationary loss, I do keep up to half of that fund in a CD ladder. And anytime I think I'm keeping too much, I remember how it felt standing in line at the food bank, and my vow to never be back there again.

[@shawnpatton3795]

I volunteer at a food bank 2-3 times per week. I think that people who can pay for food but not afford to invest should use it as a resource. I think people often don’t use it until they are way too far into food insecurity. People need to think outside the box for their future self.

[@InvestorInformed]

When my wife and I bought our house we made the decision to drain our emergency fund (except for 1k) to add it to the down payment. While I'm glad we did that it stressed me out beyond belief and I absolutely killed myself building that fund back up asap. I lost sleep thinking that if we needed to replace income, etc etc we would have to rely on credit cards to do so and it drove me up the wall insane! To think that people's backup plan is credit cards and they have no emergency fund is just baffling too me.

[@jeffstanger88]

My strategy: Understand your expenses very clearly by tracking them closely over a long period of time, and, importantly, separating fixed and discretionary. You need to know exactly where your money is going. Assume in an emergency that you cannot change your fixed costs at all, but logically can/will cut your discretionary expenses by a reasonable amount, though not to zero. I use 100% fixed and 50% discretionary. Then pick a timeframe that allows you to sleep at night and not feel anxious - my personal timeframe is 12 months. So my emergency fund is one year of 100% of my fixed costs and 50% of my discretionary spending. Those funds are held in a high yield savings account because those rates are favorable at the moment.

[@stormsandfishing5448]

I also consider accumulated sick leave/annual leave/long service leave/redundancy payment eligibility to be like a second emergency fund - I’d be owed about 8 weeks pay if I left my job, more if made redundant….

[@marlon82mc]

I believe you need enough to pay *all insurance deductibles* plus, _at least_ *3 months of expenses.* This should cover _most_ emergency scenarios. For real peace of mind, it should feel like you have a bit too much in your emergency fund.

[@markwilkins1544]

Hi Erin, your videos are soo good and informative. Thank you for posting them. You’re helping soo many people. And loving your outtakes soo much, thank you! And you look amazing in purple. Hope you have a blessed weekend 😊

[@Mazlem]

Most people think of an emergency fund of cash, but if you've been investing then at least some of that would be available too.

[@thedude5040]

I have a portion of mine in I-bonds. The bigger the inflation the more they make

[@BirdLisa]

I have a year’s worth. Single income, somewhat difficult field to find a job in. And I’ve been laid off before.

[@fredswartley9778]

You are right that our emergency fund should be personalized. The amount you need depends on several factors, such as job security, dual incomes, multiple sources of income and probability of finding a new job. Also if you are young and single, you probably don't need as much in your emergency fund.

[@GOATED1973]

I have $1300 in my emergency fund. funding $250 every week.

[@northtexan95]

One other factor is how much do you need in your emergency fund to "feel" safe. Some may feel safe with 3 months ... some may feel safe with 6 months ... some may feel safe with a certain dollar number. As long as you have enough in your emergency fund, it may be worth it to have some extra so you sleep better at night. This is something my spouse and I talked about when we got married.

[@radiok2ua]

In a future video, you might talk about how to hold your emergency fund at various stages of life, from young professional to nearing/in retirement, so that it does the most work for you.

[@jasonk446]

I have about 4-5 months emergency fund. But I have no kids or significant other. So, it's just me. One thing I did not include is health insurance. That is something I may decide to add to the fund.

[@dallison1961]

Another great video. Very informative. I'm in retirement and I think that brings a different set of dynamics into play. I have a much bigger cushion as a hedge against taking money out of my investments in a down market. I think a retiree should consider having 1-2 years of expenses set aside in a addition to an emergency fund for any unexpected expenses. Of course, this depends heavily on how you have your investments structured. For instance, if you have a bond ladder or fixed income the covers your regular expenses then you can get away with only needing the emergency fund for unexpected expenses. Also, love the outtakes!!

[@MichGoBIue]

We set up our budget so we could live on one income if necessary. Would have to tighten up the budget but use of the fully funded emergency fund would be at a minimum if any at all. Thanks for the vid!

[@markwelch439]

I'm a little more than 1 year away from retirement and currently have 6 months of emergency fund savings in a high yield savings account (single income household). My current plan is to continue to increase the amount of savings until I retire then this transitions it to use as my 1st bucket; to be able to use it for living expenses after retirement.

[@valerieproctor517]

My HSA has $2,000 uninvested, were a month ahead with budgeting, and are half way to having a lump of $10k. All total, its probably enough, but it's broken up a bit.

[@WileeRunner42]

Great video. I agree and that was my path. Living expenses less than income, investment account was my ultimate emergency fund teaching me investing, credit cards are the immediate take care of emergency since I pay each statement off in full, then slowly build up the emergency fund in a high yield savings account which is also a start over seed money for investments. Part of my emergency fund was knowing I could cut back on some living expenses.

[@tab_nebraska235]

Erin, finally subscribing. You do a fine job on these videos. Thanks.

[@The_Fancave]

Wise advice as always, Erin! I wish your channel was a thing 26 years ago when I entered the workforce. I was raised below the poverty line, and knew nothing about investing/saving until I was in my mid-30's. I'm 40 now, and for the first time in my life, I don't fear the future as much. Once I accumulated $10K in my emergency fund, (now with 4.25% apy), I decided to put anything over that into a brokerage account, (mostly index funds). If I lose my job, I can support myself for at least a year before dipping into the investment account.

[@ld5714]

Hi Erin. Very good discussion on this most important topic. It is sad but true that very few people actually have an emergancy fund. Have a good week and I"ll see you on the next one. Larry, Central Valley, Ca.

[@desiv1170]

Great video... I know as we are approaching retirement, I was a bit shocked when I heard that I should flip from 6 months to 2 years of expenses... I mean, that's a huge increase... Assuming someone had a $30k 6 month fund while working, that would mean they'd need to increase that to $120k by retirement. Ouch... So I started looking and found out that a large part of that is the concern for a down market, and needing to ride that out... Which is true, but what if someone has a pension, SS, and investments? Yeah, they want to be able to not pull from their investments because the market is down, but the pension and SS are likely to be the same (maybe minus some COLA stuff). Also, I think there might be an assumption (good one) that people go into retirement debt free. So if that happens, that changes the expenses quite a bit. So the 2 years might be 2 years of way less expenses because you've paid off your mortgage... Of course, if all your retirement income is investments and you still have a mortgage and other items, then maybe that 120k is accurate still... And if so, knowing you need to beef up that emergency fund like that, you probably want to start doing that WAY before you retire... As you said, this one is very personal and you need to run the numbers and consider the variables...

[@brandonblahnik6002]

I think a starter emergency fund of one months' worth of expenses is correct. This is in line with a study from 2019 on the question of the optimal emergency fund size ("Rules of Thumb in Household Savings Decisions: Estimation Using Threshold Regression" by Gallagher & Sabat). The Money Guy approach of covering deductibles is also a reasonable starter emergency fund. As for the question of combining investing and increasing the emergency fund together or instead putting all available money towards the 3-6 month emergency fund before investing, I agree with doing both at the same time. Doing both together is probably mathematically the better choice while building up the 3-6 month emergency fund first probably makes the most sense psychologically and behaviorally for many people. I think people should choose the path they feel the most motivated to pursue. I think that would lead to the best chance of success for that person.

[@jim2404]

Non-Personal Essentials are still essentials and shouldn't have been excluded from you calculation for 6-month emergency fund.

[@julsh9776]

The new trend is to invest 25% of our gross income minimum. I agree. Social security is not guaranteed so it is better to be safe than sorry.

[@BostonCycling_]

I think a year is a good start.

[@carroux4050]

I see it a bit differently…I only have about a month worth of emergency fund. The rest is 100% investment. In case I lose my job I have unemployment insurgence which covers my base costs. Of course, I can’t save additionally then, but I also don’t need to liquidate my investments to stay afloat. If there are bigger expenses upcoming, or even unforeseen I take a margin debt which I immediately pay of with my regular saving rates. If you have 20 or even more on your emergency fund you lose a lot of returns over the long run..

[@danh2716]

One needs to think about the potential emergencies and how badly they could impact the budget. Replacing a waterheater that suddenly starts to leak could be a financial storm for a couple making $50k, but little more than an annoyance to a couple making $250K. I will say, I do like Brian & Bo's recommendation to save at least enough to cover insurance premiums, and then start contributing to a 401k up to the company match (if offered.) Otherwise a person is just ignoring free money.

[@coast_into_retirement]

Another great video. Thanks Erin

[@nwj03a]

Well my wife and I can comfortably cover 2 months with our emergency fund, but that’s not the whole story and it’s where stuff like this gets lost in translation. We have stock, a lot of stock, and while it’s not something we could liquidate in a day, we could get it in a week. Now you’re talking over a year of expenses, or very, very expensive medical bills (we are both insured). I’m very confident we’re very safe, but in that graph it’s just 2 months (strapped down, 3).

[@richardwysocki7490]

Most of my career, I haven't had an emergency fund but have started. Pushing it higher with my age being over 50. Those of us in the IT field don't always get the chance to retire on our terms.

[@thedude5040]

Thankfully becoming a high school teacher is easy

[@FIRE_DrNinjaTurtle]

I have a line of credit for emergency. I do not like having cash losing value due to inflation. I have pension so it covers my monthly expenses

[@shawnpatton3795]

What about interest on the loan? So how much extra money do you have each month from your pension?

[@Markrtsoon]

Our monthly interest from our IJLXX money market is about $2000 a month. With our pensions and zero debt, we are good for basics.

[@livingunashamed4869]

Yeah with dual incomes 3 month is good enough, get more money invested sooner.

[@InfoSecTangSoo]

You also have to factor in age, because ageism is a real thing in the workforce. I'm 52 and work in tech...so, basically a dinosaur. I keep watching my peers (who are my age or older) losing their jobs (whether it's a restructure, layoff, etc.) One of my close friends has been on the bench for a year, another one has been on the bench for 2 months and is not seeing the level of opportunities they've seen in the past. It's pretty stressful. My baseline for an emergency fund is 1 year of essential expenses, and I wonder if that's even enough.

[@billz6938]

Erin, How do emergency fund guideline change once you are retired? We are debt free and our income sources are SS, pensions and soon our annuity benefits will begin. Thanks

[@pioneer7777777]

I, along with some of the other commentors also consider my brokerage account to be a bit of an emergency fund. I do have about $35k of cash equivalents, and then about $90k in a brokerage account. Plus my spouse has another $40k+ in cash, so pretty safe overall. Making 5% on it feels pretty good about now.

[@texasroccogaming]

Great video - thank you.

[@Andre-qo5ek]

i try to keep 33k for savings for MYSELF not for a typical family

[@davidx9417]

Military and veteran pensions are great, but don’t count on them. I’m a disabled retiree and a federal employee and a federal government shutdown can halt 100% of my income. So a multi month emergency fund is still necessary.

[@shawnpatton3795]

I’m a retired Navy Senior Chief Petty Officer since 01JAN2018. Military retirement pay is not part of DOD funds so military retirement continues during shutdowns. When I was active duty during shutdowns, Navy Federal Credit Union and other institutions continued deposits to their active duty members, knowing that our government wouldn’t renege on paying the country’s military personnel.

[@djee02]

Emergency funds are overrated if you have maxed out retirement accounts and enough invested in a taxable. Keeping 30k in cash for 40 years at 7% annual return is 420k in opportunity cost. That's how much you are paying for insurance against having to sell stock in a down market.

[@GAFB1122]

I didn't hear where this emergency fund is housed. Are we talking about a checking or savings account (regular or high yield) or are we talking about all investment accounts that can be accessed without penalties. I have tax deferred investments that I can't access till 59 1/2 or I'll pay a penalty. (I will always pay taxes on this investment, I know that) But I also have other investments that I can access at any time which I count as part of my emergency fund. Now I am in a strong financial position where I keep around $10,000 combined in my checking and savings and it's not earning much interest. But it is just my take that any money in investment accounts that you can access penalty free should be counted toward your emergency fund.

[@Standardman9887]

I’m saving up for a 20% down payment for a house and boy does that emergency fund look enticing. Like slapping a kids hand from a hot stove.

[@dhow414]

The best emergency fund for me? Paid off home and cars, all well taken care of, combined with a steady 4k a month passive income, savings in excess of $25k and no recurring expenses beyond require (living expenses and asset management expenses) making life truly worry free at this time. Working now on increasing monthly passive income another 2k then will be truly worry free.

[@mattatwar]

How do you account for employer-provided health insurance in your EF number?

[@christiansailor2880]

Great video!

[@problematicpolarbear6065]

I disagree on the emergancy fund. Keep it at the full balance dont cut down on it. It is called emergency fund not inconvenience fund. One out of two partner with an income losing a job is NOT an emergency.

[@joethecomputerguy1]

Ohhhhhhh, Erin said 2 bad words in the bloopers! Love it! And then there is a whole topic unto itself - the single person. It's much harder but doable. I did it. It's just sad so many people have no clue as to their finances. One needs to know their finances to know when/if they can retire!

[@rickdunn3883]

@Erin Talks Money. Nice video. Thanks. What do you think about using Roth $ as an emergency fund?

[@the88inParadise]

Hi Erin, Love the outtakes! Question: I have a company stock portfolio (separate from my 401k etc) It would fund me for 2+ years if ever needed. What are your thoughts on whether that could be considered as an emergency fund? My assumption is yes as it can be put into cash in less than a week. I like the fact it takes that long because if I ever needed it, it would truly be an emergency and not something I could grab quickly. Thank you in advance!

[@DallasKillpack]

I love your videos :)

[@joshuawilliams6153]

$30k is a good amount for a family regardless of specifics. I think it's too much for a single person on a couple without children.

[@robloxvids2233]

I think both their 33k number and calling it conservative are spot on. Over the course of 13 weeks this summer we had to pay for pet emergency medical services, replace both our cars, take our pre-planned vacation, and replace our roof. 78k. And we got 9 and 5 year old cars. I had a nice efund/sinking fund but still had to sell 10k of ibonds and even pull out 7k Roth IRA Contributions to make it all work without borrowing money. I had to stop my $1,916 401k contributions and likely will not resume until next year. IMO, 33k is a good but conservative start for an efund/sinking fund. 50k is a better target. And this is with both of us gainfully employed.

[@punkdigerati]

People are paying $10k/6 months for transportation?

[@Ethan-bu2zy]

My pension is my emergency fund. That said, we still keep $10-$20k in a money market fund for “emergencies.”

[@9804Dracon]

I would like to know how people handle saving for things they know eventually need to happen, for instance home maintenance and repairs. We all know we need to replace our roofs eventually, I know I want to replace my windows and gutters within 5 years. I know my furnace and air conditioner are over 20 years old so those will need to be replaced. Do people treat that as savings when it comes to budgeting? Do people do safe investments such as CDs or put it in index funds then pull it from the market when your ready to use it?

[@MeltingRubberZ28]

My take: less than 3 years away, money market or similar. 3+ years, index funds.

[@AverageGoddess222]

I have a sub savings account in my HYSA for this. My regular emergency fund is full, so I contribute to this sub account instead. I have replaced my windows, roof, done my tuckpointing, and soon siding as enough accumulated to pay for it. You could do the same for a car, vacation, or anything. If you are still funding your emergency fund, I would put most of it there and a lesser amount in the other accounts. I hope that might be helpful!

[@bigegames2019]

Less than 46% of the US population is married, and that figure is dropping over the decades steadily, and of those married, less than 45% are dual income...so your example hits less than 25% of America and of those, they likely do not have a mortgage but do have two insane car payments and crazy debt, and student loans, because that is the real statistics of America...not those like us who prioritize financial freedoms and shy away from bad debt and focus on assets, growth, and budgets, for long term goals.

[@educatedwanderer9293]

I like Dave Ramsey's baby steps but don't agree with delaying investing to pay off debt. I never stopped investing, but got out of debt using a modified approach that worked for me. Start investing without delay, then pay down debt, and build up an emergency fund.

[@turbocfn39]

I agree

[@julsh9776]

Agree. I prefer the money guys guidelines in this case.

[@EricMoore790]

I have two years rent saved. Hopefully I don't get fired at work.

[@rssiyengar]

how about $15,000 for emergency repiping a house ....

[@charletfoster8917]

Investing n saving should be done together💯😊👍🏿

[@dstevens518]

Disagree entirely about starting to invest once you have one month emergency savings built up. You have to walk before learning to run. Making 4-5% on a few thousand dollars DOESN'T take priority over protecting yourself and loved ones with a fully funded emergency fund. You're wide open vulnerable without that emergency fund, and much like the oxygen mask in the plane scenario, your first priority is your own survival above everything else.

[@enonknives5449]

I don't believe in emergency funds; I call them opportunity funds. Having more in them is always a good idea.

[@chetanjilhewar1669]

Why don’t you believe in emergency funds?

[@jeffkline9191]

I love that. Emergency is a negative and opportunity is a positive.

[@enonknives5449]

@@chetanjilhewar1669 -- I don't plan to fail. I plan to succeed. It's only an emergency is you aren't prepared.

[@todddunn945]

My feeling is that the Federal Reserve will make a .25% cut this month. After that I expect them to wait to see the effect on the economy. I don't expect another cut until December to allow time for the economy to react to the first cut. Frankly, I am of the opinion that the Fed should hold rates above 4% indefinitely because the effectively zero rates recently created an artificial stimulus and also left the Fed with no where to go if further stimulus was needed. As far as cash investments go, I like treasuries because they are safe and there is a reasonable limit on what you can invest at any one time. That is important if you are dealing with significant amounts of money. I also think the stock market is pretty over valued and am reluctant to put more than 1-2% of my portfolio in stocks. Disclosure - I am 75 and don't need high returns since I am not trying to grow my portfolio at this stage in my life. That certainly impact my strategy. If I was young (50 or so) I would certainly feel different.

[@roburb73]

$0 and been that way for decades. If I need money outside of our income I'll pull it from our taxable brokerage. I don't keep cash, everything gets invested! Dave Ramsey has people so scared something is going to happen they think they need 6x in an emergency fund.

[@heg1211]

1st like 👏

[@Sondan1988]

Your bloopers are hilarious !

[@asandrik3124]

Can’t create an emergency fund when continual emergencies wipe it out!!!!! Just saying. 😮

[@jonathanschwartz8]

Just an observation…I’m having trouble taking seriously, any person offering retirement advice who starts off every video with “Hey Guys. What’s Up?” and throws down hand gestures. Might be fine for Gen Z. Not so much for Boomers.

[@Behindthecurtain-s1o]

Stop using mixed-race memes.

[@lsrunescapemasta]

fantastic video!