Why Do We Keep An Emergency Fund

[ua_guy]

A woman in another forum asked "what it all means", if the rainy day fund is "full", 401(k) is being maxed out, etc, etc. Why keep fretting over budgets?

The answer is "control". Disaster hit, and you're still in control of your circumstances. If you were drowning in CC debt and your HELOC was maxed out, then... not so much control.

This is what I wanted to say. EF's buy you time and resources so you can control bad situations. It's your own 6 month insurance policy to cover your basic expenses and then some, so you aren't necessarily "forced" into anything. It allows you to keep your car, your house, etc while you figure out your next source. Or it becomes a cost-effective way to help cover large unexpected expenses (like a roof replacement as a result of storm damage where the Ins co pro-rates the value of the roof based on age, for example). People would otherwise have to take out personal loans, credit card loans, and pay a bunch in interest that they wouldn't otherwise need to, if they just had some money laying around (like an EF)

3-6 months is a good starting goal.

6-8, or 8-12 months is a better goal.

I don't agree with keeping EF's in investments. If you want to keep other savings in investments, great. But your EF should be accessible and shouldn't be riding the whim of the market, except for the value of cash.

[naaxt420]

You should try to think your next 2-3 month exactly and planning each penny.
After that, in these 2-3 month try investing into something, bitcoins, internet, a job, a company etc.

We keep those money "just in case", if you remove the just in case = money.

[marvholly]

I am retired but still keep an EF on hand because (hit with in the last month):

$7000 dental over the next 6-8 months (>1/2 my income over the same time)
$1200 auto repair

I would NOT have been able to cover these costs and still pay for basic housing, utilities and food without my EF.

[corn18]

I am retired but still keep an EF on hand because (hit with in the last month):

$7000 dental over the next 6-8 months (>1/2 my income over the same time)
$1200 auto repair

I would NOT have been able to cover these costs and still pay for basic housing, utilities and food without my EF.

How do you replenish the EF?

[marvholly]

I originally built it up by saving 10% of my income for several years. That will continue. Also, I have been saving money every month to spend on a vacation. There will NOT be a vacation this year & maybe not next.

[LivingAlmostLarge]

Personally we used to invest our EF but then when we decide to move we started just stashing cash. Cash is also good for investing. If you see something you want to buy into the cash is also good to be able to quickly move in and out of positions without selling what you have.

When we settle we'll likely keep 3 months in cash and invest the rest. It's good to have cash on hand to pay for home repairs, car repairs, anything. And it's just the first line of defense.

Ask me what i've been spending lately in cash and it's staggering.

[HappySaver]

We are looking at $7000 to replace our AC system. Still getting estimates as we're in shock at how expensive this is. Plus our water heater is next in line. Glad to have that liquid EF.

[disneysteve]

We are looking at $7000 to replace our AC system.

We did our heater in January and the AC in March (just to spread out the expense). Total was $7,000 so yes, that EF comes in handy. Plus we had to spend a couple of days in a hotel when the heat was out.

[CashUp Sammy]

Keeping a cushion in the bank is not "risky" because you are keeping it out of a potential earning situation (ie invested in stocks or bonds etc), but is safe - in that this money is available for you to use should a REALLY good investment opportunity come along - when times are bad, you can step in a pick up an asset for a steal - all of your highly leveraged / fully invested peers will be out to sea.