How Important Is an Emergency Reserve?

[Joe Moore]

In my accounting years I have seen many companies with large assets bankrupt because they did not have sufficient cash flow. It is difficult to turn certain assets to cash whenever you want. With today's living there are so many commitments in a family life that needs to be met. I normally feel comfortable if I have at least 8 months of living expenses in reserves or you have credit for such expenses.

[Retired To Win]

you can get a decent genset for around $500 these days. Might be something to consider. Personally having a genset on hand allowed us to stay home comfortably during an ice storm (no power for 7 days) and hurricane sandy (no power for 6 days). 5 gal tank on the genset lasted approximately 3 days running 24/7. Far cheaper than driving somewhere with amenities.

Good God, please tell me: what is a genset? My whole-house 10KW propane-fueled generator literally guzzles the fuel. Five gallons of propane would not last me 5 hours on that sucker.

[TheKayla]

I never realized how badly I needed an EF until I actually got one. Before I tapped in and out of CC debt -- if only by a few hundred, but either way I sometimes was not able to pay off my bill at the end of each month. I thought I had a spending problem, I had an organization problem. You hear a lot of the time when people ask if they should pay off debt or build an EF first, and it seems hard to think you need the EF first, until you actually do it and have it! Mine is still tiny, but I've used it for a few things here and there -- emergency repairs, and unexpected bill that we couldn't win the argument to get rid of (we have had problems with CenturyLink and are stuck till the end of the year!), and so on. I've been building -- slowly but surely -- a more permanent EF as well that hopefully I'll never -- or perhaps only once or twice in my life have to use. Something like if I lose my job or have a huge medical bill or something.

An EF, while not condoning it be used for discretionary spending, is also a great cash buffer for when trying to organize and change spending habits. Sometimes when there's a slip up when trying to rein in spending, it's best that it comes from cash you already have over putting it on credit. Then, having to make yourself replenish the EF has some more meaning!

[disneysteve]

An EF, while not condoning it be used for discretionary spending, is also a great cash buffer for when trying to organize and change spending habits.

I think it is very important to have a reserve, a cash buffer, just for day to day spending. I always keep a couple thousand extra in the checking account because some months the bills are just higher than other months. It isn't always predictable. Stuff happens. So I think the first stage of your emergency fund is that cash buffer.

[HalfDozenDaily]

I think it is very important to have a reserve, a cash buffer, just for day to day spending. I always keep a couple thousand extra in the checking account because some months the bills are just higher than other months. It isn't always predictable. Stuff happens. So I think the first stage of your emergency fund is that cash buffer.

I agree... I have a "slush fund" which $2K in it for "unexpected extras". It keeps our EF safe and untouched. This year we used our slush fund for a new home security system which was almost $1K, but it kept our EF in place.

[Retired To Win]

... An EF, while not condoning it be used for discretionary spending, is also a great cash buffer for when trying to organize and change spending habits. Sometimes when there's a slip up when trying to rein in spending, it's best that it comes from cash you already have over putting it on credit. Then, having to make yourself replenish the EF has some more meaning!

In my case, the money parts of the emergency reserve I detailed in my original post are separate from my discretionary fund. As I said at the start, my emergency reserves include 6-months worth of baseline expenses in bank accounts and a couple of thousand in cash held at home. Those funds are separate from my discretionary spending fund, which I hold in another bank account.

So, when I have unexpected spending it comes out of my discretionary fund. My emergency reserves stay in place. (Needing a new refrigerator is not an emergency; losing your job is.)

[disneysteve]

In my case, the money parts of the emergency reserve I detailed in my original post are separate from my discretionary fund. As I said at the start, my emergency reserves include 6-months worth of baseline expenses in bank accounts and a couple of thousand in cash held at home. Those funds are separate from my discretionary spending fund, which I hold in another bank account.

So, when I have unexpected spending it comes out of my discretionary fund. My emergency reserves stay in place. (Needing a new refrigerator is not an emergency; losing your job is.)

Some of this is semantics but that's okay. I don't have one specific account that is my EF. I have money in multiple places that all together is my EF and what you are calling a discretionary fund. Some money is in cash. Some is in my checking account. Some is in a CD. Some is in I bonds. Some is in my brokerage account.

And I'm not sure I'd agree that needing a new refrigerator isn't an emergency. I certainly wouldn't want to be without one for more than a day or two.