The Bare Bones Budget + How Big of an E-Fund Do I Need, Part 898678050

I feel like I just keep circling back around to this topic! For a while last year I was wondering if I needed an e-fund at all — after all, I have no dependents to provide for and if financial disaster really struck, I’d be able to give up my housing (which is just a rented room with no lease to break) and move in with friends or family. Everyone shouted me down on that, and I was convinced 🙂 [Side note: at that time, five comments was a huge number on one of my posts. On a day to day basis I don’t feel like I’ve made huge progress at growing the blog, but looking back at those early posts they look so lonely! Thanks for reading and commenting, y’all, every single one of you makes my day.]

All right, anyway: although I did come to realize the importance of having an e-fund, I’ve somersaulted around on how much should be in it. I changed the goal from $3000 to $5000 to $10000 to $6000 and now it’s at $5000, for no real reason other than that’s half of $10000, a number that seemed impossibly huge to me. Although a year ago I was saying things like “I couldn’t possibly get it large enough to really live off for six months or a year” and as a matter of fact I ought to reach six months’ worth by the end of 2015, if not before, so maybe I shouldn’t sell myself too short 🙂

What I was wondering about, was how much six months of expenses really amounted to. I seem to spend around $1100 a month lately if I’m not being overly scrimp-y, but also not randomly buying all sorts of stuff. So $6600 would get me through six months. Realistically, however, if I lost my income suddenly lots of stuff would be up in the air. So, what would I really need for six jobless months? Here’s my best guess:

1) Rent: $800 (that’s two months in my current rented room; if I couldn’t replace my income in that time frame, I’d move in with friends or family.)
2) Food: $1500 (that’s $250 a month, and I’d say that’s a fairly generous allowance; I absolutely could live on less, but let’s leave it there for now.)
3) Car: $900 (insurance at $50 a month, plus much more gas than I normally use since I’m assuming at some point in there I’d be driving halfway across the country to move in with someone)
4) Storage: $0 (quite a bit of my stuff is currently rent-free in a friend’s basement; I’d put anything else that wouldn’t fit in my car down there and it could stay for a couple of years until she finishes her graduate program and moves out)
5) Cell phone: $150 ($25/month)
6) Misc personal care/medical: $250 (I usually allot $100 a month for this but in an emergency situation I’d reduce to bare-bones supplies and avoid doctors’ visits — especially since I wouldn’t have insurance)
7) Misc other spending: $600 ($100 a month to cover whatever else I haven’t thought of)
8) The emergency fund’s emergency fund: $1000 (to cover car repairs or what have you)

Interesting. That adds up to $5200 — I’m writing this post and doing the math “live” so I had no idea when I started that list that the final total was going to work out so close to my random e-fund goal! That’s probably a sign that it’s fate 🙂 It seems to me like the takeaway here is that aiming for $5000 is good for now; if I ever start living/spending like more of a grownup — which frankly is starting to look pretty doubtful to me — I’ll have to look into increasing it.

Do you keep an e-fund that has X months’ expenses, or just aim for a nice round number like $1000, $5000, or $10,000? At what point do you think you have “too much” money in cash and start to think about investing some?

39 thoughts on “The Bare Bones Budget + How Big of an E-Fund Do I Need, Part 898678050

  1. Alicia says:

    Currently my EF is sitting at $5,000, but I’d like to get it to $10,000 by the end of the year. I guess my reasoning is that it’s a nice 5-digit number, and it roughly equated to 4-6 months, depending on how pared down my budget was. I’m starting to become more comfortable with the idea of just keeping $5,000 sitting there over the long term, because after my debt is crushed I will have other sources sitting around, such as planned spending that could be tapped if an emergency came up. Also, if I lost a job I’d get the max EI, and that would supplement a lot of my weekly expenses leaving a lot of my savings untapped. And then there’s D – I could fall back on him for a bit if it got really bad – but if I was getting to that point, it wouldn’t happen overnight… we’d see that coming.

    Now that I’ve started to invest and see the magic of the market, I know I’ll try to put as much as I can in the market in the future, but I’ll still have cash on hand for certain things. But I might get to a point where it’s just $5,000 sitting around. Who knows… for me it’s still too abstract with this debt standing in the way 🙂

    1. thesingledollar says:

      Yeah, my E-fund numbers don’t include, say, my travel savings account, or the sink funds I’m trying to get going for car repairs and whatnot. It’s true that in an emergency of course that would all be accessible. There is something satisfying about the idea of $10K in the bank but I’m not sure it’s really necessary…. I’d like to start a taxable investment account at some point. I’m undoubtedly going to change my mind a bunch before I get around to doing anything about it though 🙂

  2. Cindy says:

    I keep going round and round on this one too! I think my main issue right now is because I’m still in debt pay-off mode. I have $3,000 in an e-fund right now. I occasionally question if it wouldn’t be more effective to throw some more of that towards debt, and then build back up the e-fund once I’m out of debt. I also question what to do with any “extra” money when I sell my house. Part of me says throw it all towards debt. Part of me says hold on to at least some of it until the end of the year, to cover expenses that are likely to come up this year (travel, weddings, etc.). But I’m putting the cart before the horse. I need to sell the house before I start planning on how I’ll use the money!

    My plan is to build it up to $10,000 once I’m debt free. But at that amount, I’ll consider it an e-fund/savings fund. Not just for absolute emergencies, but also to cover things like computer replacements, etc. I don’t want to have a ton of little sinking funds for every possible thing in the world. I’d rather just have a set amount that I always try to have on hand. Of course, I’ll probably change my mind 65 times between now and then.

    1. thesingledollar says:

      If I were selling a house I would have spent the excess in my head about 50 times before I got anywhere near a sale 🙂 Anyway, I kind of like the idea of a $10K “whatever” fund. Maybe I’ll get more comfortable with that as my savings get larger. Right now, I want easily identifiable sink funds, but I can see changing my mind as my net worth grows.

  3. We bumped ours up to $20k as she will be taking 8 weeks of unpaid leave for maternity. It is ridiculous how women in the United States get screwed over with maternity leave from work, especially compared to other Western countries. I believe this is a symptom of our societal sexism directed at women in the work place – which is why women are paid less for doing the same job, face the “mommy tax”, and get next to no paid maternity leave while working right up until they pop. The icing on our cake is that there is no short term disability at her company, so they pay 1 month and the rest is on us. We will be losing the larger of our 2 paychecks for 2 months.

    In our budget spreadsheet (I love spreadsheets!), I am able to calculate our monthly mandatory expenses – which is how I calculate our requirements for the e-fund. I think about it as if one or both of us lost our income all together. We would go into extreme saving mode and stop saving into our various funds, contributing to investments, etc. and we have about 6 months of bare bones expenses on hand for that.

    I know some people complain about not having that money being put to better use, but it really is an insurance policy against the unforeseen. I spent 8 years as an Army officer and from that I learned that things can and WILL go HORRIBLY wrong, which is why you need at least 2 or 3 contingency plans for when the first one fails too.

    I would recommend finding your bare bones number if you had to go into extreme savings mode and bump that up to 3-6 months. We keep ours in an online MM account earning 0.85% which is not much at all but it sure beats the .01-.03% of our bank while still being liquid (debit card and checks). Different folks will have different needs.

    Some will advocate for a HELOC or floating on credit until you are able to pull cash out of investments. To that I say, look at 2008 when the economy tanked. Investments were cut in half (you don’t want to realize those losses and HELOCs were cancelled (which lenders can do at any time for any reason). I refuse to have my security tied to something that someone else can take away and leave me high and dry for no reason. Security should be your #1 concern at all times, which means keeping it out of the hands of others.

    1. thesingledollar says:

      I 100% agree with you that our maternity system is a disgrace. I’m glad you can weather it financially, but the way we do it as a nation just sucks. I wish we could get more comfortable with the idea of the common good, and that we have an abundance of resources so why not make everyone’s lives a little easier instead of just letting insane amounts of money flow to a miniscule group of people? Sigh. Anyway, I agree that I don’t want my e-fund in the market. I’m likely to need it just as the market is tanking! A savings account is good enough for me (mine earns .75% right now, so I’m not exactly getting rich off it, but it’s a little better than a normal bank savings account, like you say.)

  4. This is where Hubs and my financial situations becomes really dysfunctional. I’m really good at saving money, but horrible at keeping it saved. How many times did I build up a savings account only to drain it and throw it at my debt? Hubs on the other hand is super great at letting cash sit in a savings account for eternity. We still have separate finances (we got a joint savings account this week! woot!) so he keeps the emergency fund away from me and I plow through the debt. He has something like $10k saved so I live by the seat of my pants with money.
    Once my debt is gone (APRIL 10TH!) I’m going to build up an account to ~ 1000 so I don’t have to tap into his reserve or screw with my cash flow if I need something/something happens. And yes, my numbers are totally arbitrary.

    Great job guessing how much you’ll need in an emergency! You could be one of those weight guessers at a Carnival, but for Emergency Funds! (Part 898678050? That’s so many parts!!)

    1. thesingledollar says:

      April 10th!!!!!!

      That’s an interesting marital partnership. Everyone’s playing to their strengths so it sounds like it’s working for you, basically. Do you think you’ll have separate expenses forever? Or are you getting more comfortable with the idea of joining them?

      1. We are working toward more joint finances, but I doubt we will ever completely get there for several reasons. Nothing is broken with our system, its just not the most efficient.

  5. Since I only just started my EF a few months ago, and can’t contribute very much to it, my goal is definitely in flux. My ideal amount would be 6 months salary, not the bare minimum of what we’d need to live on for 6 months. I think this would allow for some freedom and flexibility, so if isht did hit the fan, I wouldn’t have the added stress of barely scraping by. But, like I said, I’m still a long way off from this goal.

    1. thesingledollar says:

      I think probably the more the merrier when it comes to e-funds 🙂 I was trying to envision a worst-case scenario, but I agree that six months of comfortable salary would be awesome. Good luck to both of us as we beef these up!

  6. Elroy says:

    I’ve gone back and forth. Forth and back as well. At one point, we had almost $80k in cash. But, with a relocation and the decision to finish our basement in a snap, I was happy it was there so I didn’t have to borrow anything.

    Now, we have about $35k in the bank – cash. I don’t really have the option of moving in with friends and family on a whim. But, what I realized was, I would never invest anything in taxable accounts, because there was never enough cash. So, I’m happy with the ~$35kish cash. And I’ll probably bump up to $40k at the end of this year to continue my CD ladder. But, I’m focusing on investing moolah directly into the market via a taxable account. My time has come, and I need that moolah to execute my early retirement plan. For efund purposes, I value my equities at 1/2. So, if I have $50k in stocks and $35k in cash, to me that is equivalent to $60k cash. Plus we have Roth’s and other retirement accounts. So, I think the risk is warranted.

    Sorry going “all stream of consciousness” on you.

    1. thesingledollar says:

      No, that was interesting! I can’t quite envision having $35K in cash, let alone $80K! But on the other hand, it would be relatively easy for me to shed financial obligations on a temporary basis (I wouldn’t expect to move in with my friends forever, but it could definitely work for six months to a year, minimum) so it’s ok that I don’t have as much cash backup. I agree that I’d like to start a taxable account; I’m not quite in a place where I can think about doing that but I’d like to get there in the next few years.

  7. Currently our emergency fund is enough for 3 months of expenses (about $5500) and a lot of that is eaten up by rent. In reality we spend far more than $2000 per month, although I’m hoping to bring that number down, and if we did lose both of our jobs we’d definitely be going into survival mode. The guys over at Listen Money Matters suggest having $25,000 in a Betterment or other type of investing account, which I think is absurd! My goal right now is to slowly add to our emergency fund and then start making targeted goals such as saving for a down payment or future babies.

    1. thesingledollar says:

      $25000 seems like a LOT of straight cash, definitely. And I think that’s loosely my plan — after I get the e-fund to $5000 I’ll divert that money to saving for a down payment, etc, but of course that savings fund would be available in case of a true emergency too. It just makes me feel better to have them in at least theoretically separate pots.

  8. $5,000 sounds like a good number for you. We’re not entirely sure about our emergency fund either. We try to just keep around the money we think we’d need coming up. Usually that seems like 6 months worth. We also have investments that we would use if we had to to get us further. Hopefully we’ll never really need to use it.

    1. thesingledollar says:

      Yeah, I hope I never have to use it too! My ideal is to burn through it on one last vacation about a week before I die 🙂

  9. ARBM says:

    I have my current e-fund goal at 3 months of mortgage payments… So rounded up, $10,000. I just picked that out of a hat. Lol.

    1. thesingledollar says:

      3 months of mortgage payments sounds great! But hee to rounding up. I mean $10K does sound really nice, doesn’t it?

      1. ARBM says:

        Now I just have to actually get that in an emergency fund…

  10. I’m gunning for 3 months with a little buffer for now for all expenses, then making a decision on whether to keep funding it or instead put that cash flow elsewhere. My employment paranoia is pushing me towards having a 6 month buffer. Beyond that is definitely the “too much cash” point for me. At 3-6 months gets a little fuzzier, hence my indecision.

    1. thesingledollar says:

      I think it probably depends on whether your employment paranoia is really paranoia, or whether you actually have stuff to worry about (the tech industry is pretty unstable, right?)

      1. It’s probably somewhere between the two. Maybe that’s an indicator that I should split the difference.

  11. Jason says:

    I currently have about $10000 in our emergency fund. And I think you are right to call it the bare bones emergency. For example, if you have an emergency do you continue to pay your credit cards? Student loans? Etc? That is why I think $10000 is a good number for us b/c it covers mortgage, utilities, food, and basic gas and the like. For us that is probably about 3-4 months of expenses. My problem is that I have an emergency coming up, will be using part of it to get out that emergency, and not sure when I can replenish it. I hate to see it go, but taxes must be paid (or we are in the clink).

    And five comments is awesome. I just am trying to get a couple per post…I need your secret ingredients 🙂

    1. thesingledollar says:

      My secret ingredient is time, mostly — time and lots of commenting on other people’s blogs! Anyway, $10K does sound good, partly because even though you’re about to use a big chunk and won’t be able to replenish immediately, one big emergency isn’t going to wipe out your entire fund. I think that’s a good argument for going bigger than $5000, actually; it would be nice to be covered for two or three big things, rather than just one.

  12. You ARE living like a grown-up! I wish I had been more grown up when I was your age. I am struck by the fact that because you are living so frugally now, if you do lose your job, you won’t be overwhelmed by expenses that you can’t pay. That was our problem. We didn’t live frugally, and then when disaster struck (in the form of job loss), we just went deeper (and deeper) into debt.
    We’re following Ramsey’s steps, and we’re not at the big e-fund step yet. When we get there, we’ll be saving $18,000. I will feel very good having that in place, so that if disaster strikes again, we’ll be able to absorb it so much better.

    1. thesingledollar says:

      $18,000 sounds wonderful! I think we all just have the feeling that we should have started younger — I’m in awe of the 20-somethings I see in the blogosphere with their financial acts totally together. Eh — we’re starting now, that’s better than not starting at all 🙂

  13. Tarynkay says:

    We keep ours at $6k. This obviously doesn’t cover every possible contingency.
    But when we set it, we did think through what would constitute an emergency. We also have an HSA with enough in it to meet the deductible on our health insurance. And we budget for home and auto repairs and have insurance for those things. That money goes into separate savings if nothing breaks that month.

    If my husband lost his job, he would get unemployment. I would also get a job. I currently stay home with our son, but also do some babysitting. I actually make enough babysitting to cover our small mortgage, so that is nice.

    1. thesingledollar says:

      I always forget about unemployment! I’ve never been able to claim it before (freelance), but I would now. Your contingency plans sound great. It must be especially comforting to know you could cover the mortgage yourself if you really had to.

  14. Amy says:

    I would like to have four months worth of expenses (bare bones, of course), but we currently have two months. With our school loans, car loan, and mortgage, our monthly expenses are pretty high, making it harder to save several additional months – especially since I’d rather put any additional money toward debt repayment.

    1. thesingledollar says:

      I think that while you have a lot of debt…it would be really nice to have four, but even better to put money towards the debt (although it’s great you lowered the interest on that.) Sounds like you’re on the right track.

  15. Sounds like $5,000 is a perfect amount for you. And, you can always reassess down the line. Plus, I totally think you live like a grown-up ;)! We keep some in cash but have the rest invested–there’s a point at which we don’t want to have too much in cash.

    1. thesingledollar says:

      I could debate you on the grown-up thing but right now I’m too busy drinking coconut-flavored everything in the Caribbean 🙂 I agree, $5000 seems about right for now. I can revisit later.

  16. I like round numbers, so that’s what I’m aiming for ($10k). That would be 6-months of expenses, but a little extra.

    1. thesingledollar says:

      Round numbers are really satisfying, aren’t they? I even skim the interest off my savings accounts (I put it in my retirement fund) because I prefer seeing the zeros there 🙂 6 months plus a little extra just in case sounds perfect.

  17. Anne from E. says:

    After so many comments, there’s not much to add any more. Just two points: you cannot postpone doctors’ visits when you are in pain, so I wouldn’t rely on that possibility. And perhaps it would be wise to plan expenses for finding a new job: you may be travelling a lot, need to buy some information or need some extra clothing. So personally I would also go to the 10,000 $ option.

    1. thesingledollar says:

      You’re right — it’s better to go to the doctor when you really need to! I didn’t have health insurance for years (You’re from Germany based on your email address, right? I wish we had national health care!) and went to a sliding scale clinic once or twice. But I did put off an awful lot of stuff. Anyway, you’re right that I’d probably feel better with $10,000 — I’ll probably work on topping up my $5000 at a slower pace.

      1. Anne from E. says:

        Yes, you’re right about Germany. Although we are complaining that our health care isn’t as comfortable as some twenty years ago (a lot of economizing now), I’m very well aware that we are far better off than many other countries… I think your idea is great: put a lot of efforts into an e-fund until $ 5000, and then continue at a slower pace!

  18. MJ says:

    I keep $5,000 in my emergency fund, although for a long time, I was obsessed with getting it up to $7,200. I’m keeping it at $5,000 while I pay off the debt. But I totally have similar math:)

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