I’ve had $10,000 sitting in an emergency fund for about two years now. Thankfully I haven’t needed to use it yet (and hopefully wont need to for a very long time). Even though my income and marital status has changed over the last couple years, I haven’t thought twice about changing my E-fund balance.
I initially decided on $10,000 for two reasons. First, it was a nice clean whole number, and if you read my post last week, you know I like pretty numbers. But most importantly, I picked $10,000 because it represented about 6 months of living expenses for me at the time. My rent was dirt cheap ($580/month) and I was pretty frugal. My expenses were way less than 1,667 a month ($10,000 divided by 6 months).
Last August I got married. As I went from “single” to “married” every aspect of my budget increased (food, rent, gas, etc). Fortunately, Girl Ninja was makes decent money as a teacher, so even though our expenses increased, the net result was positive.
If you look at our 2011 Ninja Budget Of Epic Gloriness, you’ll see we have budgeted for about $3,900 of expenses each month. That would mean our $10,000 E-fund is really only able to cover about 2.5 months of living expenses. Nowhere near the six month reserves I recommend…or is it? dun dun duuuuuun (insert dramatic music here!!!!)
At first glance you’d think we have less than three months expenses in our E-fund, but a closer look shows that $10,000 could easily last us 6 months, and probably closer to a year! But Ninja, how do you do it? Well reader, I’m glad you asked.
The $3,900 outflow shown in our budget accounts for everything. Retirement contributions, tithing, dining out, and the like. If Girl Ninja and I both lost our jobs tomorrow (which is pretty unlikely), we could easily cut our monthly budget to almost half. Here’s how….
Roth IRA: $416 to $0 (stop retirement contributions)
401K: $305 to $0 (see above)
Tithe: $800 to $0 (no income to tithe on)
Food: $500 to $350 (no more dining out)
Gas $200 to $150 (stop using my car)
Random Things: $377 to $200 (cut entertainment, clothing, etc)
By making these cuts, our $3,900/month budget slims down to a much more manageable $2,011/mo. Which means our $10,000 E-fund can last us 5 months in the event we both lost our jobs.
But wait, there’s more!!! (I feel like a cheesy infomercial…haha)
If only Girl Ninja lost her job, we wouldn’t need our E-fund since I make enough to support our current lifestyle. If I lost my job and we decided to keep spending at current levels, we could last 10 months off Girl Ninja’s income and our E-fund. But if I lost my job and we made most of the cuts mentioned above, we’d actually be able to survive off just her income…forever. for. EV. ER. (sandlot anyone?)
So even though it may appear as though I’ve neglected our emergency fund over the years, I really haven’t. Ten thousand is completely sufficient considering the stability of our careers and the flexibility we have within our budget.
For those of you that have an emergency fund (hopefully all of you), how did you determine how much to put in it? Did you pick a pretty number like $5k or $15K? Did you set the amount based off your current monthly expenses multiplied by a specific time frame, like 6 months? Anyone treated their E-fund similar to the ninja household?