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I have more than I really need. Hubby and I both work full time, and my job, at least, is really secure. So 6 months worth of expenses is all we'd normally be recommended to have in cash equivalent assets. But security is really important to me. I'm not someone who could sleep at night if I ever defaulted on a debt, or was behind on my house payments, for example. Bankruptcy would probably give me an ulcer.
Therefore, we have about 18 months worth of expenses in liquid assets. However, for the last 2 years, I've been laddering a portion of that into 5 year CDs at 2-2.3% interest. Checking/savings only pay .05%, which is basically 0.
However, we have pretty low expenses, so for me, 18 months worth is less than some of you have for 6 months. About $35k. We have it spread between a bank and a credit union, with the CDs at the credit union. The goal is that by the end of 5 years, $20k will be in laddered CDs and the rest in bank accounts.
And that is without changing lifestyle. I could cut back on a few things, and maybe stretch that to close to 2 years, but when you are already not spending very much, cutting back is harder. A full 24 months would be difficult. But that's assuming we BOTH lost our jobs. We can live (just barely, with no further saving/investing) on one income without depleting our savings.
My experience is colored, but that's probably a work hazard. I think some immediately accessible cash is always in order. I've seen too many cases where a few thousand dollars would have made a large difference in a true (hospital/jail) emergency.
I've seen other oddball issues where the house of cards fell over something trivial, but no one could access their money quickly enough to save it from collapse.
I need $2000 a month to pay household utilities, health insurance, food, and incidental spending so $25K a year. Taxes and insurance and vacation I can pay out of taxable investment income of about 17K. I keep 100K cash in a internet savings account; thats 4 years income to ride out any stock market crashes. I've reduced my bills to the bare minimum, using the budget plan and threatening to pull my account if the bills are not lowered.. My only splurge is entertainment where Verizon payment for the triple package and extras is $225 a month. I think you need at least 100K set aside with your expenses.
I've heard up to six months is recommended.
Is that at your current lifestyle or at "oh oh, time to cut back till we get back on track" rate?
For example I early retired off my investments which are rental properties and plan on spending everything I get and living life to it's fullest after building a reserve.
To live in decent comfort with no travel or outlandish cars etc I need $4894 per month.
But at the lifestyle I wish to lead it will be $9843/month.This budget includes 3 car payments on luxury cars and about 24K a year to travel. If things went bad I can cut the travel, cars might be a bit harder as I would have to sell, maybe at a loss. I have no mortgage or debt except for cars.
Outside of a health disaster I can't forsee anything really hitting me.
I'm thinking maybe putting aside about $50k to $60K for reserve.
What do you think?
Also where would you put this much. The idea of getting .002 from the bank doesn't sit well with me.
I keep 9 months (about 15k) at my current life style (on my way to 12 months at the moment). I keep it with a stock broker's bank account (so I don't look at the number in my real bank account and be tempted to spend since "I got moneysss".). Interest is crap, but what I do is I invest a small portion of it in mutual funds, about 25%. I think that's enough (over the long run) to rise with inflation. But at your current budget, I think you're fine with 50-60K in reserve, just invest part of it so it doesn't lose value due to low returns, or put your money in a CD with a online bank (like Ally) and get 1-2%, it'll at least get some return guaranteed.
We are working towards an emergency fund of six months of living expenses, plus a little extra, so $20K total. Anything over that will be invested, as it will be considered long-term savings.
The $20K we are shooting for is also a fluffy monthly budget, so it could be stretched to 8 months or more if we went bare bones.
In my opinion, people should reserve 6 months worth of INCOME, not expenses. This way in the event of a job loss you will not just barely scrape by.
How much you reserve should depend on the number of household members. A family of 4 should probably reserve 4X as much as a single person. Also, if you own a home versus rent. A homeowner should have extra reserves to cover emergency home repairs such as a new roof, A/C, or water heater.
In my opinion, people should reserve 6 months worth of INCOME, not expenses. This way in the event of a job loss you will not just barely scrape by.
How much you reserve should depend on the number of household members. A family of 4 should probably reserve 4X as much as a single person. Also, if you own a home versus rent. A homeowner should have extra reserves to cover emergency home repairs such as a new roof, A/C, or water heater.
I disagree here... Our monthly expenses are not just to scrape by, but to cover our needs, which include the "must haves" plus the "nice to haves", plus a portion of the yearly expenses such as insurance, etc...
This way covering our expenses is enough. If we lose one of our jobs we dont really need to save $3k a month until we can get back on our feet
I've heard up to six months is recommended.
Is that at your current lifestyle or at "oh oh, time to cut back till we get back on track" rate?
For example I early retired off my investments which are rental properties and plan on spending everything I get and living life to it's fullest after building a reserve.
To live in decent comfort with no travel or outlandish cars etc I need $4894 per month.
But at the lifestyle I wish to lead it will be $9843/month.This budget includes 3 car payments on luxury cars and about 24K a year to travel. If things went bad I can cut the travel, cars might be a bit harder as I would have to sell, maybe at a loss. I have no mortgage or debt except for cars.
Outside of a health disaster I can't forsee anything really hitting me.
I'm thinking maybe putting aside about $50k to $60K for reserve.
What do you think?
Also where would you put this much. The idea of getting .002 from the bank doesn't sit well with me.
I'd look into opening an account with an online only bank if you're set of putting the dough in a checking account; these banks seem to have much more competitive rates. When I used my Bank5 checking account, I got 0.76% interest, which, while not great, was a hell of a lot better than most of the competition.
I've heard up to six months is recommended.
Is that at your current lifestyle or at "oh oh, time to cut back till we get back on track" rate?
For example I early retired off my investments which are rental properties and plan on spending everything I get and living life to it's fullest after building a reserve.
To live in decent comfort with no travel or outlandish cars etc I need $4894 per month.
But at the lifestyle I wish to lead it will be $9843/month.This budget includes 3 car payments on luxury cars and about 24K a year to travel. If things went bad I can cut the travel, cars might be a bit harder as I would have to sell, maybe at a loss. I have no mortgage or debt except for cars.
Outside of a health disaster I can't forsee anything really hitting me.
I'm thinking maybe putting aside about $50k to $60K for reserve.
What do you think?
Also where would you put this much. The idea of getting .002 from the bank doesn't sit well with me.
I think the options and reserve amounts are different when you are working compared to when you are retired. I work for the Federal Government and we do not pay into state TDI insurance, so I carry private disability insurance that will pay me 75% of my pay in the event of an extended illness. Not that I want to, but I do have the options to take a loan against my 401K/TSP account as well as can an equity loan against my paid for home in a worst case scenario.
When I retire in 6 or so years I will not have TDI insurance, or the ability to take a loan against my 401K/TSP, or work a few hours of OT because when I retire I do not want to ever have to go back to work. For these reasons I would like my post retirement reserve funds to be in the ballpark of $100,000. With my retirement income coming pretty much all from a pension, social security, and withdrawals from my 401K/TSP fund, these income sources are monthly set amount disbursements which do not provide the ability to tap into a large amount of $$ if I need a new roof, boiler, etc. So $50,000 of that $100,000 will be for those unexpected expected expenses which will be refilled with the reserve from my monthly sources of income which will be about$2,500 a month, and the remaining $50,000 will go into a higher growth account for an added buffer.
So much depends on the security of where the sources of income are coming from in retirement, and although my pension and SS are COLA adjusted, inflation seems to outpace those adjustments. In retirement I want to continue to grow some of my money to try to level the playing field of uncertainties.
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