Comments on: Stop Debt Repayment To Rebuild Emergency Fund

By: marci

marci — Wed, 23 Jul 2008 16:12:02 +0000

Re: retirement vs emergency funds.. I actually no longer have a dedicated emergency fund as I will just pull out of my retirement fund if the need arises – at this stage of my life (in my 50’s) I figure the two accounts do not need to be separate. I do keep a money market checking account for very ‘liquid’ easily available monies at about $3000-$4000. And some of my investments are very liquid – meaning 24 hrs or less. I figure that will handle what ever comes up.

By: The Happy Rock

The Happy Rock — Wed, 23 Jul 2008 13:59:03 +0000

@natalie – General guidelines tends to be 3-6 month of expenses. One month is not enough. The emergency fund should be able to carry you through job loss or disability.

Personally I have about 6 months.

By: Natalie

Natalie — Wed, 23 Jul 2008 13:43:06 +0000

Maybe I missed an earlier post, but I wanted to ask you how much you advise for fully-funded emergency fund? One month of expenses?

By: tiffanie

tiffanie — Wed, 23 Jul 2008 01:28:54 +0000

i just did the opposite…i hit our mini goal of $1500 in emergency fund so I’m putting that on hold to do a debt snowball

By: Andy @ bloginyourface.com

Andy @ bloginyourface.com — Wed, 23 Jul 2008 00:52:23 +0000

My fiance and I consider our emergency fund to be an amount of money that will cover the most expensive thing that could break on us: Our furnace or air conditioner. That potentially being 3500 dollars (estimate) we try to keep that much available.

On top of that, we are somewhat doomsdayists. If both of us should happen to get laid off in the same day from our respective jobs, we plan on going out and getting temporary jobs as servers, bartenders, or even fast food until we can figure out career options. We figure jobs like these will pay all of our living expenses EXCEPT the mortage payment which is just over 1100 a month! This being the case, we also have enough of an emergency fund to cover our mortage payment for 6 months should we need that long to get another well-paying, steady career.

So, we are a little bit overboard, but we have 10,000 dollars in our emergency fund. That way if our furnace breaks in the dead of winter and we both get laid off, we are good for 6 months. Some days I would die to take a huge chunk of that out and pay off some student loans or my truck loan…maybe even buy a hot tub…but we are both to nervous about the economy to do that.

By: Marci

Marci — Wed, 23 Jul 2008 00:13:12 +0000

Your last comment said exactly what I was thinking. You are Buying Peace of Mind… It’s costing you the difference between the interest you would be paying off, and the interest you earn in the emg. fund.

Me? I would just keep at the debt, betting that another string of bad luck didn’t happen before I got something else paid off, in which case I would be ahead if I kept on paying on the debt.

But I understand being able to sleep at night also – and for some that means having the emergency fund in place, and the resulting peace of mind. There’s all kinds of ways to reduce the debt, and each person has to pick their own path and make their peace with it.

By: Frugal Dad

Frugal Dad — Tue, 22 Jul 2008 23:26:29 +0000

@Happy Rock (and others): We set aside $3,000 because we are a one-income family with two kids – emergencies seem to have a way of finding us! And $1,000 can go pretty quickly, particularly when you have had a string of bad things happen in a short time.

Several of you have asked why I don’t continue to pay extra on debt. I do make the minimum payments to stay current, but temporarily suspend the extra payments until our emergency fund balance is back up to our goal. Over the life of my debts I’m probably paying a little more in interest, but I’m gaining peace of mind.

By: James

James — Tue, 22 Jul 2008 23:02:30 +0000

I agree with your Emergency Fund plan, but I’m surprised that more people haven’t disagreed with it. So many of the articles I read say that debt reduction is more important than anything. But like your other readers have stated, you really ought to have the emergency fund, because credit cards just don’t make sense if/when an emergency happens. Another angle: Older people (like myself) probably should expand the emergency fund to include “retirement” (whatever that means). It doesn’t make sense for people to spend their entire life paying off debts, and then end up with nothing left.

By: Scott @ The Passive Dad

Scott @ The Passive Dad — Tue, 22 Jul 2008 21:17:39 +0000

You are in the minority of people who have an emergency account and should be commended. I have lot’s of friends that I talk about an emergency account, and they just laugh at me. I can’t believe so many people just live paycheck to paycheck without putting some money aside. I tell people to set aside $1k, but your $3k is probably more realistic for the unknown expenses in life. Great job!

By: BethBeth

BethBeth — Tue, 22 Jul 2008 19:40:53 +0000

Hmm, I’ve been reading lots of PF blogs for quite awhile now and I don’t recall seeing this process written out like this. Thank you. I was wondering what I was going to do, now that I have to replenish some of the $3K emergency savings that I had. I hadn’t thought about lowering my debt payments to get the emergency fund back up. Sometimes you just need somebody to make it real clear before ya get it.

Thanks