18 thoughts to “You’re Saving Too Much Money in Your Emergency Fund… And You Might Not Need It at All”

  1. About a month, I suppose, sometimes higher and sometimes lower. It’s more a maintenance/slush fund, though. I’ve spent it on vacations and I’ve spent it on a new pool pump when ours but the dust, and it just builds up for covering big things. It’s an extremely luxurious privilege to be confident that you can always cover 100% of bills.

  2. This post is timely for me! My emergency fund used to cover 3 months of my living expenses. But then my mom bought me a condo! (long story) Now that I’m only paying HOA and annual taxes, my old fund covers 6 months of expenses. I’ve been considering spending some that fund on new furniture, or opening a CD fund.

  3. Heh I keep a year because I rate myself low on all three points: risk tolerance, social support and financial adaptability.

    My risk tolerance was built from a childhood of financial stress that was compounded by a very long period of unemployment during the Great Recession. That, I can slowly chip away at.

    I have a great group of friends but I don’t think I could actually ask more than a couple of them for an assist. They might have it but I couldn’t ask for money.

    My career is probably at the peak of what I’m willing to push for, given the sacrifices that might be required for anything “higher” and I have everything (flexibility, autonomy, good money) that is important to our lives right now. I wouldn’t be willing to take anything less than this 🙂

    But I don’t disagree with you, I keep a year of emergency funds out of anxiety. I use credit cards regularly to build up rewards but nope, won’t consider leaning on them as part of the plan if we lose our jobs or need time off for health reasons. Given the fact that my health has never been good, I remain a catastrophic planning type. I don’t see that changing so much since I’m too deeply aware of how easily an accident or illness can alter the trajectory of a life.

  4. I have pretty high social support (a friend of mine who moved across the country a few years ago had their house burn down two weeks ago, and immediately our friends raised nearly $1K in grocery gift cards- before their GFM was even set up). I have a spouse with a much higher net worth and income than me. I have several sources of income and am probably able to get *some* kind of job quickly if all my work dried up because I have a pretty broad professional network. I have pretty low average monthly expenses (~$1300-$1500). No kids, no car, no debt. We rent, so I could exit my lease if something really bad happened.

    And yet… years of living in poverty without much safety net and living through the recession in a town where you couldn’t even get a retail job without a degree, I have to have a big emergency fund. My stress level won’t let me have less than 12+ months in my emergency fund, plus my sinking funds in checking. I also maintain Euros in a separate account for freaking out in case I run away to Europe (EU citizenship pending). Is it reasonable to have 10K in my checking account? Absolutely not. But rational is less important to me than breathing easy. I still invest, and I put aside more than 22% of my income in retirement.

    Part of this is medical fear from ~~america~~: I didn’t have health insurance for years before the ACA (because poverty), and I went 8 years without treatment for a progressive autoimmune disease. Now, I am treated effectively with one medication, but my insurance loves to fight me every year on covering it. This year I got slammed with a $3K unexpected co-pay due to a rule change in 2021. My medication costs $12,000 per month without insurance or manufacturer copay assistance. There are ways to get it (fly to Mexico) for only several hundred dollars, but that costs money. I get scared, especially with the ACA being chipped away by the courts. Not to mention the surgeries I’ve had with unexpected out-of-network costs in the thousands. Also I can’t get disability insurance (due to my condition), so I always get scared about that.

    Anyway. My choices aren’t necessarily rational, but neither is the US health care system. And that’s my stance.

  5. My financial anxiety is through the roof and will stay there forever, I think, but I compromised with myself: now that I’m in a good union job with fair pay (HALLELUJAH), instead of stacking up cash in my bank account obsessively as an emergency fund, I’m making an extra mortgage payment every month.* That helps me feel like the money is going to something useful and zero-risk – paying off the debt faster, hooray! – AND ALSO it’s a Thundershirt-like comfort to look at the “Next Due Date” part of my monthly statement and see that I won’t start getting rude phone calls for a year or more, if something happened where I needed to stop making payments right now. Since the mortgage payment is the biggest of my monthly expenses, not needing to pay it for a year would increase the potency of my actual, lump-o’-cash emergency fund significantly without having to increase the literal amount sitting in that bank account. I’m sure there are tons of theoretically smarter places to put this money, but DAMN is it nice to have come up with one that is actually soothing to my anxieties.

    *If you want to do this too, make sure first that the fine print on your mortgage won’t penalize you for pre-paying! My mortgage is through my beloved small credit union (strong, strong rec for wee mighty credit unions BTW), so I just went in person and asked about it for reassurance before commencing this plan.

  6. I’m in this picture and I don’t like it

    Ie. y’all got my eying my emergency fund and the bear market and thinking about making the leap

  7. I think you nailed this. I teach others to have an emergency fund but I never truly had one. I’m strong in social support and adaptability and my risk tolerance is moderate. If I had over 10k in my checking account, a wallet full of paid off credit cards and a husband with the same, I knew I was fine.

    I retired at 51 and am almost 58 now. I do keep 6 or 7 years of subsistence expenses in CD’s and cash just so I don’t have to sell investments when the market is down. Not sure if you would consider this an emergency fund. This seemed silly until now.

  8. I admittingly have too much in my cash savings accounts, and also 2 credit cards with a combined limit of ~$20k but the only thing that has kept me from re-purposing my cash somewhere else is…if I use my credit cards to pay off a 5-figure emergency, there’s no way I’ll be able to pay my card(s) off without accruing some interest, so like…how does that math work? Does the buying power that I’m losing by sitting on cash hypothetically overshadow potential credit card interest, or the other way around? My brain hurts.

  9. My personal e-fund is 8 months worth of expenses. My spouse’s personal e-fund is 6 months of expenses. We also keep an e-fund for our home at about $15k in case, for example, our main water line gets a leak and we have to pay $6,500 for the plumber to dig up our front yard to replace it (true story!).

    I would say I have low risk tolerance, high social support, and medium financial adaptability. However, this set up works well for me. I don’t try to grow my e-fund beyond the 8 month mark and I invest quite a bit – maxing my 401k, Roth IRA, and investing in my taxable account.

    Overall, we are in a very good financial position and while it’s not optimal to have 8 months of expenses in cash plus a home e-fund, it’s what helps me sleep at night when my car breaks down or a pipe breaks in our house. Not having those unexpected expenses come out of my cash flow or come due on a credit card bill to then come out of cash flow is the peace of mind I need.

    I would also echo what some other folks have noted about healthcare in America. I am lucky to have great insurance through my spouse’s job but I’ve been on ACA and know how insane the costs can get with mediocre or no insurance at all. For folks who have high/regular healthcare expenses, a fully funded e-fund makes a ton of sense.

    This is definitely a personal choice. I like how you’ve broken it down into those three categories to give folks a measuring stick and a framework to think about it!

  10. I have a premium bank account which is “free” if I keep a minimum balance. The minimum balance works out to be about 6 months of living expenses. This pool of cash is my defacto emergency fund. It’s there if I have an emergency but in non-emergency situations it means I’m not paying monthly user fees to the bank (which are criminally high in Canada). The fee that I don’t pay works out to roughly a 5% “return” on my money. In addition to not paying the monthly fee, I’m also eligible for other stuff like free money orders, better currency exchange rates and other perks, all of which I’ve used at least once since opening this account.

  11. But but but—I liiiiiiiiiike my giant savings safety net! 😉 Ok, I probably like it less now than I used to when we first established it. I’ve grown a lot over the past few years and feel more confident / secure in the last area (financial adaptability). I launched my own biz, so I’ve been networking like crazy for the past 6 months and have a huge amount of connections. I feel pretty confident that if I ever decided to go back to work for someone else I could have a job ASAP from one of those.

    So now I’m wondering, if I decide to let go of some of that cash I’m sitting on, if maybe spending on my business is the best investment. I’ve wanted to hire a personal chef for a while now. Or maybe we could outsource laundry. Either would give both of us more time for our business hustles. Of course I could spend it on “practical” things to, like a logo or a real website. XD

  12. One pleasant side effect of being This Person is that as you become more financially stable, savvy, and less anxious and precarious, you might find that you have accidentally started a Down Payment Savings Fund ¯\_(ツ)_/¯

    I expect that I will feel some kinda way upon spending the down payment savings fund, about no longer having that money liquid! And I’m a little stressed that I think I want to buy in the next couple of years, but not 100% sure I will, so I want to keep it liquid, but I also don’t and IDK man.

    My oversized emergency fund taught me that I am more capable than I thought of taking good care of myself and others. And it has brought me peace of mind over the years as I move from precarity to financial stability. But, it’s time — I need those savings I worked hard for to do a different job now. Here’s to personal growth that is also financial growth that is also personal growth! 🙂

  13. We have about a year in various cash pots. We need at least 3 months by May since I don’t get paid in the summer.

    I am fine with this. I’m not crazy about selling stocks and dealing with figuring out which to sell in terms of taxes and markets and etc. Much easier to take money out of cash during an emergency.

  14. I have just under a year’s worth of basic expenses, which…. is probably too much. Especially considering I recently found out that even if I DID get laid off (unlikely), my company would provide a severance package of a bit less than 3 month’s pay.

    Under these guidelines, I probably only need one month’s expenses in an emergency fund, but that would stress me the heck out. I’ll probably widdle it down to 6 months or maybe 4 months.

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