Revisiting the ideal emergency fund

February 21, 2010 at 9:21 am (emergency fund)

Up until this past week, I thought having a $1K emergency fund would be more than sufficient. My job is ultra-stable, not in danger of disappearing or being cut down even if other people have reduced hours. So I never worried too much about it – if something really BIG happened, more than I had saved up for, then I could always temporarily dip into my (now paid in full!) personal line of credit.

I get the concept of having 3-6 month’s of living expenses saved up, “just in case.” I’d love to do that! But I really want to pay my debt off first. Saving and increasing my 401K percentage and contributing to an IRA will just have to wait until my debt is GONE. It should be about 3 more years. 

There is one major flaw with my accepted theory. An injury or health problem that causes me to be unable to work. A co-worker broke her wrist a week ago, outside of work. So worker’s comp won’t apply. She’s unable to do most of her job (it is physical and requires movement and range of motion). In effect she will be losing quite a bit of work until the whole healing process is complete. 

If I had a similar situation, say I get into a bad car accident, or fall on a hike and break my leg or something, how would I handle that? Right now my EF is at $700 (but as I’ve mentioned recently, when I get my tax refund in the next 2 weeks, I will drop in another $300 to fully fund it). I think I’ll continue to gamble on nothing catastrophic happening. In the long run, having no debt and needing to use some to pay for it vs. having a big savings fund to deplete but not being able to make any headway on paying down debt come out equal in my book. So I guess I’ll continue with my status quo. 

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1 Comment

  1. Aaron Reiley @ ACE Financial Services said,

    I’ve been into saving my living expenses too in the past, it’s just that I’m beginning to think that it will be better to “diversify” my money, just like a wise investor do with his money. I reached for up to 6 months of living expenses saved before. Eventually, I invested half of it to my long-planned small business and I’m glad it worked out.

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