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3-6 months is considered the norm. COVID has definitely shifted thinking to 6+ months of expenses as it could take that long to find a new job sometimes. But 12 months seems extreme, and you don’t want to hinder your retirement savings too much.
Despite receiving the standard education on the subject(3 month expense for dual earning family and 6 month for single earner)...I’ve averaged less than three month’s expenses for basically my entire FIRE journey...currently I have 0.7% of my net worth in cash(maybe 86% in stocks, 8% home equity, 8% bonds...with the amount above 100% in low cost borrowings)...you do need to consider your personal situation and calculate what sort of likely drag that cash will present. I currently am willing to borrow at 3.5% from my zero balance HELOC or my brokerage account...each could provide more than 100 months of expenses...so you can see that if I have an emergency once a year for a few months and borrow at that rate...that is equivalent mathematically to offsetting a 1-2% opportunity cost or “cash drag”. I also have six figures in highly rated muni bonds that yield north of 4% and can be borrowed against...once again, providing a very low cost funding source. But definitely not the right approach for everyone.
I see 6 as the more common rec, 12 is fine but conservative. It should also be months Of expenses, not salary
Yeah, I’d shoot for 12 right now but take into account unemployment income too. The $ you need might not be that big
Your emergency fund doesn't need to be 100% cash. Just needs to be liquid.
What about keeping part of your savings in muni bonds or short term bonds?
My emergency fund is in CDs and HYSA. I think it is too risky to put that in the market; I need my principal to be guaranteed.
I have about 1 year of my net pay in CDs and HYSA. That will be changing in the coming months when some of my CDs mature and the interest rate is so bad it makes more sense to make lump sum payments on the mortgage. Its so depressing seeing renewal options for a CD I opened 1 year ago at 2.8% with a renewal rate at .85% 😟
Also, I am married and living the DINK life. We could easily live off 1 persons salary but our savings goals would suffor if we did.
@manager risk advisory my strategy is to just still go the CD and HYSA route for my emergency fund. It needs to be liquid and the principle needs to be protected so I feel it is my only option. And yes, it stings looking at interest rates today versus what the CD I opened this time last year is. Since the fed promised to keep interest rates low for a few years this is how it will be short term.
Keep ~2 years expenses (ex-healthcare/COBRA) in cash, money market specifically. Keep rest of net worth in equities.
Tell me about it. Hope you find someone to dress up as $$$ to cover the phantom gain.
Also don’t forget to consider COBRA (or healthcare market) as potential/probable emergency expenses when you’re calculating.
Good point @director1. COBRA is so expensive! I looked into it when I left an old job and had about 20 days before my new job's insurance was valid. $490 for a single person in their 20's! I just laid low for 20 days and if something happened my plan was to follow @accenture2 's advice
Job market looks tough. I have 18 months expenses
Well actually with the government mandate on mortgage forbearance... no one is paying!
Partner and I are holding a lot of cash ~120k. Should last us 25-30 months if we need. We could also sell stocks if needed, but would prefer not to.
@B1, it is our way to diversify. 90% of our other net worth in equities and real estate.
Norm is 6 months expenses, not salary.
I've got about 4 months in cash. I would sell stocks for anything longer.
Thanks. I'm pretty confident that the severe understaffing and strong market in my field will keep my job.
Thanks all. Apart from very low yield CDs and HYSA, any other options to safely save the emergency fund?
CDs are terrible right now with next to zero federal interest rates going into 2023. I am taking my chances on index funds and then high yield savings accts.