How to Size Your Emergency Fund
By Daria Giron on December 28, 2011
Featured Member Post
In this economy, more and more people are turning to their emergency savings to help them make it through a gap in employment. The recommended size of an emergency fund differs – some say 3 months, some say 6 and yet others say 12.
Personally, I think it depends.
Here are some of the things you should consider when deciding how much of a safety net feels comfortable for your situation:
1. Your Field - Are you a specialist with a narrow niche? Then there probably aren’t a lot of job openings available that would fit your qualifications and you should have a larger emergency fund than a less specialized person.
2. Severance – Do you have a severance package? I’ve never been so lucky, but I do know many executive positions include a severance of several months. If you know you will get a severance, I would count that as part of your emergency fund and adjust accordingly.
3. Income Streams – Do you have multiple income streams or are you solely reliant on your job? If you have multiple income streams – such as an employed spouse, rentals, stocks, sidejobs, etc. then your likelihood of having to cover all your expenses is reduced and your emergency fund could be reduced accordingly. If you are solely reliant on your job, then a larger emergency fund is recommended.
4. Liquid Funds - How much do you have in stocks that could be liquidated if needed? How much do you have available on a Home Equity Line of Credit? Your emergency fund doesn’t have to be a savings account that is set aside and marked EMERGENCY. It can be a combination of your savings, stocks, HELOC and other liquid assets that provides the cushion needed to make it through a short term gap in income.
Personally, I am comfortable with a 6 month emergency fund, but don’t have 6 months of wages in an account. I do however, have 6 months of liquid assets available.
How big is your emergency fund? Is that where you want it to be?
Check out this list of 32 more money saving tips.
Article first published (by me) as How Big Should Your Emergency Fund Be? on Technorati.
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