How Much is Really Enough?

This week we continue our commentary with baby step 3, which is to save 3-6 months of expenses in a fully funded emergency fund. We absolutely agree that you should have a fully funded emergency fund. However, if you are already dealing with extenuating circumstances, or you are a one income family, we believe six months is really the minimum you should consider having in reserve before moving on to the next step; depending on your circumstances, a year may be more appropriate. Just think about how fast this summer has flown by; Memorial Day seems like it just happened, and yet we’re only a couple of weeks away from Labor Day… that span is just over 90 days, or three months. I can’t imagine how fast it would seem if we were in the midst of a financial crisis and were eating through our emergency reserves.

To reiterate, we’re not in disagreement as to the point of this step, or its order in the process. We just think that those of us who have more going on would be well advised to take a bit more time to build a bigger cushion before moving on to ensure we are able to weather our brand of storm.

As you are calculating how much money you need to live for your determined time span, be sure include the following:

  • all bills that you pay monthly, quarterly, or yearly (such a HOA fees, AAA and other memberships, etc.)
  • fuel and other regular travel expenses, such parking fees
  • food
  • medical expenses – this one is big for us – and includes therapies, medications, supplements, supplies, special foods
  • pet expenses
  • school fees
  • essential clothing needs

Regarding medical expenses, having a large family with every member having some chronic issue, it’s hard to remember a year that we didn’t meet our deductible — we did it in January once — and that is one thing we definitely took into consideration when calculating what “fully funded” would look like for us. We actually set up a separate sub-account at our bank and use it as a sinking fund to cover our annual deductible and then some when we have a big medical hit, such as an ER trip or an expensive diagnostic test. Once we’ve had to use it, part of our budgeted “payments”, regardless of what else we’re trying to do financially, is to get that account funded again before the end of the year so.

Each family is unique, and only you can decide what is best for your family, as we have for ours. Just be sure that you consider any special circumstances you may have before settling on the appropriate size for an emergency fund for your family, to ensure that it is sufficient. For us, it is the peace of mind knowing we’ll be able to pay our bills so we can fully focus on addressing whatever problem led you to dip into your fund in the first place.

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