I have been hearing that one really only needs about 2 months of cash in a savings/checking account (I personally use a MMMF (SPAXX)), but I have always been told at least 6 months.
I see the logic in 2 months – you put the rest into the market, and as long as your stocks/ETFs, etc. can go down ~75% or so in a worst case scenario and you still have 6 months of savings on hand, then you are in a secure position.
Just wondering if anyone here uses the 1-2 month cash rule and invests everything else into the market or if general consensus really is 6 months or so, and why you choose that method of securing your finances.
My range is 3-6 months. There are a few reasons for this:
– getting a new job will probably take 1-2 months in a good scenario, so I want more than that to feel secure
– major emergency type expenses are about 3-4 months of my emergency fund (car, roof, etc), so 6 months means I can weather one such event just before losing my job and still be fine
– we’re a single income family, so me losing my job would be much more significant vs someone with a dual income situation
And as to why I don’t invest my e-fund, I don’t want to sell when stocks are down, so psychologically I would feel less secure that way.
I’ll consider investing it once I have >4x my e-fund needs invested in a taxable brokerage account because that would allow me to take a margin loan instead of liquidating my stocks even if the market crashes 50% (many margin loans call when the ratio dips below 50%). Until then, it’s going to stay in guaranteed income investments like t-bills, i-bonds, or CDs. I actually count my e-fund as part of my bond portfolio.
I prefer around 10 months for me. What if you get sick and can’t work for a few months. So now you not only have to come up with income for a few months or even longer but chances are if you are sick then you are incurring medical bills that also need to be paid. So you need monthly emergency fund income plus money for medical bills. Sure you can make payment plans on medical bills but it is still debt. And if you only had a few months of savings you would have no savings when returning back to work and that doesn’t really give you any financial wiggle room.
I work with people that sometimes due to health issues they take 4 months off and one took six months off. They didn’t get paid for that time period either. One had to sell his nice truck.
You do what you are comfortable with
Depends on a bunch of factors. One income vs two. Are kids involved. How specialized is your career if you lose your job. Pre existing health conditions. A young, healthy, dual income couple with no kids, who work in easily replaceable fields needs less emergency fund than a single income family with kids, and health concerns, and works in a field where a new job could take a year to find, needs more emergency fund.
I personally would suggest at least 6 months of easily accessible finds in case of any emergency.
EF level depends on your situation. Think it through…how long can you last with no income and not using credit card?
I don’t put any of that money in the market.
You do you. I have a fat year, could stretch to 18 months if I trimmed budget. I sleep better knowing I don’t have to take the first job I apply for.