If you have more than $10,000 in the bank, I think you’re silly.

After a few years of living well below our means, Girl Ninja and I have managed to save up about $80,000. On average, we spend about $3,500/month. According to my calculator watch, this means we could survive for about two years – at current spending rates – on just our savings. If we cut back on spending just a tad, which we would in the event we both lost our jobs, we could stretch this out to over 2.5 years of expenses. Talk about financial security!

But then there is this pesky thing called a down payment that one must consider when looking to buy a home (don’t worry this isn’t another post about homeownership). For the houses we are looking at, this likely means a down payment of around $70,000. This leaves us with just $10,000 in the bank after we buy a house (note: I’m assuming the seller will pay most, if not all, of our closing costs as part of the purchase agreement).

In the event we both lost our jobs, $10,000 would only sustain us for about three months. That’s a heck of a lot less cushion than the 18+ months we’ve gotten use to having. So what are we gonna do about it?

Absolutely nothing!

First, let’s not forget the $80,000 we have banked is not really our emergency fund. Some of it is, but most of it has always been earmarked as a “future house fund”.

While you might say “Ninja three months of expenses is not enough for an e-fund”, I would say back “You sir are a cotton headed ninny muggins.” $10,000 is plenty for the Ninja household. Here’s why…

The odds of us losing our jobs at the exact same time are quite small. She’s a teacher and hasn’t had an issue substituting or getting a contract position since she graduated college. Even when the San Diego School District was slashing positions left and right, Girl Ninja got a full-time contracted teaching position. Heck, she secured a teaching contract in Washington state three months before she even moved here. Needless to say, the girl is good at what she does.

While it’s possible the federal government workforce could be reduced here in the coming months/years, my position isn’t going anywhere. This isn’t an arrogant statement, it’s just reality. You remember when there were murmurs of a government shutdown a year ago? I got an email from my agency specifically saying our position is considered “mission critical” and I would have to continue working, shutdown or otherwise. What’s more, my performance reviews have always been favorable and I am no longer the youngest agent on the team (well I am the youngest by age, but not by years worked). Government positions are infamous for being pretty darn stable. If we worked in less secure fields we’d definitely consider bumping up our E-fund.

Maybe $10,000 isn’t enough, but I just can’t think of a plausible situation in which we would need access to all of that money in one swoop. Both of our vehicles are fully insured (comprehensive and collision) so they could be stolen, or totaled by an uninsured motorist, and we’re protected. We have renters insurance so if someone breaks in to our house and steals all our stuff, we’re covered. We have awesome healthcare benefits through our employers (Girl Ninja is actually double-covered) and our max out-of-pocket is well below this $10,000 threshold. Life and disability insurance are benefits my work provides. Short of someone kidnapping Mom Ninja and demanding $50,000 ransom, our $10,000 emergency fund should cover all major hiccups (especially if one, or both, of us are still working and brining in money).

Let’s not forget, savings accounts are terrible places to let money sit. They don’t keep up with the rate of inflation, which means you actually LOSE money each year. Why put more in a crappy savings vehicle than necessary? Remember money in a Roth IRA, and/or a taxable investment account, can be accessed in the event of an emergency without penalty.

Heck, if Girl Ninja and I decided tomorrow that we never wanted to buy a home, we would immediately invest the $70,000 we would have put down on a house. WE WOULD NOT KEEP IT IN OUR SAVINGS ACCOUNT ANY LONGER. We only have $80,000 in the bank because we plan on writing a fat check in the next few months.

Stocks and bonds help grow wealth. Savings accounts can’t even maintain wealth 🙁

Sometimes, I think people who have a 12 month emergency fund are silly, but I guess that’s the beautiful thing about personal finance. You do you, and I’ll do me. Chances are we’ll both end up just fine… although my money will at least be keeping up with inflation 😉

Low blow?

How much do you have in an emergency fund right now (dollars and/or months of expenses covered)? What’s your ultimate E-fund goal? What made you decide that amount (why not more than that)? Has anyone with a 12 month e-fund actually used ALL of that money for an emergency?

p.s. I am not advocating people should keep three months of expenses in the bank and blow the rest, but merely they should consider keeping three months in cash, and investing the rest.

45 thoughts on “If you have more than $10,000 in the bank, I think you’re silly.

  1. 10k in the dedicated emergency fund, which covers somewhere between 5-6 months of expenses. Ultimate goal would be a year, but I dont plan on putting anymore money into that fund for the next few years.

    I actually decided on 36k to cover all expenses for a year, but then refined the absolute needs down to 20k. I thought having 36k in liquid cash for an emergency was a bit excessive.

    FWIW, we probably have another 60k in cash that is earmarked for things like vacations, home upgrades, cars, gifts, IRA’s taxable investments, etc and I don’t think investing all of that money is wise.

    Going back to yesterdays post and the down payment, have you budgeted for furniture and other home items?

    • Sure have 🙂 We aren’t looking at very large houses (1,200-1,800 sqft) because we are looking in the really nice pockets of the greater Seattle area. We have a good amount of furniture now, but by the time we actually closed (probably three months at the earliest) we would have another $10,000 or so banked for furniture and any immediate renovations we wanted to do.

  2. I figured that was the case, just wanted to make sure you looking at the big picture and not just the down payment.

  3. For sure. I missed out on a couple things. Each day, month, or season is a new experience in home ownership. Just when you think you covered all the corners and thought things out, the most common sense thing comes out of no where.

    Good luck!

  4. We have a 2 year EF. It so happened that both of us were out of work during the same month. We didn’t have to touch the EF at all as there was a nice severance package and we found work 6 weeks later.
    The good part about having the EF was that there was no stress about waiting out and finding the dream job.

  5. We’ve got $10K and that’s probably the amount we’re going to keep in our E-fund until we have kiddos, and then I’d like to have maybe another $5,000 just to be safe, in addition to investing per kid.

    Curious though… if you aren’t buying a house until next year. where are you keeping that hefty $80k now? Regular savings account? Money market? Investments?

    • The down payment money just sits in a savings account with ING. It’s not the sexiest place for this money, but it is the safest place and since we could be accessing it within a few months, that’s where it will stay. I typically think savings accounts should be used for any money that is earmarked for spending within a 5 year time frame.

  6. We have a $10,000 E-fund as well, and a very similar spending rate too. Like you, we currently have more in our savings account ($103,000) but most of it is earmarked for a future home.

  7. I have $10k in savings as my emergency fund, which is about 6 months worth of expenses. I’m comfortable with that amount as a single person, no kids, who lives fairly frugally. I also keep the money that I save for my bi-annual mortgage paydown in my savings account, so that can be up to an additional $15k at any given time.

  8. I have 25K for my Efund, which is probably a little excessive (two incomes, stables jobs) but right now our local bank is giving us 4% on up to 25K, so that is why I am fine with leaving that much cash liquid.

  9. $10k seems to be the standard around here, and I am currently saving towards that myself. I’ve got another 6 months or so until it is fully funded. It’ll last me about 4-5 months 6-7 if i cut out a lot of unnecessary things (like cable and my smart phone cell plan) if I thought I needed to do that.

    I also have other savings set aside for going back to school and helping to pay for a downpayment on my next house. So, if I lost my job tomorrow I’d have almost $15k if I really needed it.

  10. I dunno. I think looking longer-term is a good idea with the e-fund. Perhaps if you have only $10k earmarked e-fund, and other cash available for when things get crazy, that would help in an emergency. If you’re planning on having kids, I don’t know if one of you will leave the workforce but if so, a stronger e-fund is that much more important.

    Yes, you can tap the Roth if needed but that’s far from ideal.

    Personally, we are a one-income family and have enough to cover about 6 months’ of expenses, possibly 8 if we really stretch it.

  11. I keep only 3 months of expenses in cash, but my Roth would give me another 8 months. Once in a while I take some money from my cash account when expenses are high, but I replenish it to provide a steady 3 months. At my age, having past the magic 59.5 mark, all money is equal. If I lost my job, I would simply have to start withdrawing from my tax-deferred accounts, with no penalties. Some cash is useful for liquidity, but too much is a losing proposition over the long term especially with today’s interest rates.

  12. Is there a way that you could compromise on a lower priced home, or possibly a Foreclosure home. then your downpayment would be smaller, and if you take on a roommate for a few years while you make larger payments on your principal and interest then move into your dream home in like 3 years and keep your other home as a full rental earning passive income.

    • Yeah we sure could. Actually about 4 miles away from where we currently live, there are homes for sale for about $120,000. Although an extremely low house payment would be nice, there are reasons these houses are so cheap…. their location. We want to buy an old home (circa 1920s) in a well established community in the Seattle area. Reality is houses in Greenlake just aren’t cheap. I get that could be hard for people that live in the midwest, or other low cost state (texas), to understand, but real estate in Seattle is just more expensive than those areas. That said, even a $350,000 will be well within our budget and we WOULD NEVER risk being house poor.

  13. Sounds like some solid thinking. You guys will be fine, although I don’t think having more than $10k is a bad thing. AND, since your monthly spending is so low, you’ll have one month with $10k, and then you’ll start adding to that number again… no stagnant cashflow.

  14. At least around here (Minneapolis area), the market has recovered enough, and there’s so few houses on the market, that it basically has turned into a seller’s market — getting anything, let alone all of your closing costs paid is no longer a safe assumption. I’ve had 3-4 friends / coworkers buy a house in the past 3 months, and while their initial offers all included +3% closing costs, not a single penny of closing costs made it into any of their accepted offers.

    As for the eFund, we’re still in the building stage. 3 months would be ~$12,000, and we were within six months or so of reaching it. However, last month was very expensive due to some one-time seasonal purchases for a house in Minnesota, and had to pull some out, which set us back 4-5 months.

  15. I’m a comedian! My Roth IRA is a CD earning .5% interest 🙂 However the bulk of our money is in an online savings account (TAXABLE!) earning about 1%. Working on a 360 month emergency fund, however 😉

    After losing a great deal of money from the dot com bust, I HATE the stock market. I guess it stems from my situation that I don’t make a lot of money in the first place so I value safety over risk. I do try to play the lottery every now and then and that satisfies my risk appetite at times. At least I know what my odds are when it comes to the lottery, I feel the stock market is manipulated by insiders. To have all my money in the market scares me the most.

    • Well, we’ve been down this road umpteen times before, and I still don’t know what you mean by “manipulated by insiders.” Certainly if you put all your investments into one sector – whether that’s high-tech, energy, heatlh, or whatever – you run the risk of big losses. On the other hand, if you hold the entire market, as in a Total US Stock fund plus some international, and keep maybe a 60/40 or 50/50 allocation between stocks and bonds, then there’s greater safety than holding everything in cash. Back in 2008 I know people who lost heavily because they had everything in stocks. Those who were more diversified lost less. Consider also that stocks often tend to rebound after losses if people don’t panic and sell low. What was one of the best years for stocks? a few years after the Depression, 1933. 2009 was also pretty good.

      • I guess I feel that the market is a pump and dump kinda place. I thought I had some good mutual funds, but they ended up being worthless because the fund manager was “trying” to get the best return and lost. Of course it didn’t help that an insurance agent was the one who sold me those mutual funds. So I’m done with it all, I don’t want another lesson even though I’m sure Vanguard or Fidelity or etc. are the RIGHT ones to invest in now. Also from what I can tell, corruption is rampant everywhere from corporations to the government. It’s almost bad enough to the point where I feel I should take it to the next level and invest in guns and bullets :/ Eh, I guess I’ll resign myself to the banksters 1% savings account in the meantime…

      • After all, I’m sure I’m the only person who has lost money in the market and refuse to play again. Everyone will be rich and I will be poor. C’est la vie.

          • I appreciate it, Larry but I’m hopeless 🙂 However, by trying to help me, I’m sure you are helping others who might believe my foolishness. I’m doing ok because of the main PF mantra, spend less than you make which to me is most important.

  16. Yeah, this something I think about a lot – the opportunity cost of keeping too much in cash as opposed to investing it. After a lot of back-and-forth, I decided that 5K in cash is enough to make me feel secure for now. I don’t own a home or have an dependents (besides my cat, but she’s insured) so 5K can cover most emergencies. 10K would be a my long-term goal, but I don’t want to miss out on investment returns any longer, so a thick e-fund will have to wait for now.

    At some point you have to say enough is enough when it comes to cash savings. No matter how much you save, something more expensive than your cash reserves will accommodate *could* happen. But if you worry too much about that, you’ll be stuck saving more and more and more forever, and not really be able to build wealth.

      • I DO have pet insurance. I faced a whopping bill with my last pet when she experienced an emergency, so I’m not making the mistake of not having insurance again. Also, I adopted an older pet.

  17. I have about 20K in cash that would be considered an emergency fund. If I had to I could sell some stuff in my taxable account and last for several years. If push came to shove I could really trim expenses and probably make that 2K last 2 years (no house payment helps a ton!).

    I’m totally with ya Ninja. I don’t see the point in holding onto a lot of cash, I’d rather have my money working for me.

  18. I have about 5K in my savings. I wouldn’t call it an emergency fund per se, just some money that I have sitting around not doing much of anything. I noticed a few of the comments included the Roth in there accessible funds. If I did that, I would have about 7K. I have not really thought about savings since I am trying to pay down some school debt (it isn’t due yet, but I’m just trying to get ahead of the game). However, the smart thing would be to probably bump up the savings before the loans come due just in case an emergency does happen.

  19. We have a whopping $100 in our emergency fund currently. My middle child had had 2 ER visits, one 5 day hospital stay, 1 911 phone call made for him and 90 days of inpatient for critical psychiatric care. So with over $100,000 in medical bills for him alone this year, we have decimated our emergency fund.

    Next year is rebuliding time.

  20. I have 6 month’s worth of expenditures, which is $15k, in my emergency fund. It may be excessive since I believe if I am without a job I will be able to collect unemployment, in which case I only need half of that amount and that is not counting severance pay.

    Since I am also working to pay down my student loans, I wish I could follow Dave Ramsey’s $1k emergency fund rule, but since I am now at a higher level in terms of position and salary at work, I think I should be safe and at least plan for 6 months of job search.

    Btw, I live in Chicago and the housing here is not cheap, especially in decent (see I did not say “nice”) neighborhoods. Being originally from the West Coast I know this is a typical belief by folks that everything in the Midwest is cheaper, but it really is a city by city scenario.

  21. I think emergency funds are about comfort level and we should not set an upper limit on how much is enough. What I feel comfortable with someone else may not. It all depends on what life circumstances you’ve had and what you anticipate in the future. I heard Dave Ramsey say once he has an emergency fund for his emergency fund. He probably has more money than any of us but that statement makes sense if you know anything about his personal history.

    My wife and I have four months worth in a basic savings account. Probably won’t go higher than that due to investments we could use if we had to.

  22. Our EF is only about $1.2k but I’m not losing sleep over it. It’s only about 25% of our monthly take-home pay, but we have an emergency budget for if one of us loses a job and that EF would help us stretch for about 9 months. Our jobs are very stable (our advisors are tenured!) and if we were to lose one we’d have probably a year’s notice. Anyway, we have other cash on hand that has been earmarked but could be commandeered in various emergency situations. When my husband graduates, though, I really want to start saving for mid-term goals we’ve been putting off, like a larger EF and a house downpayment. So I’m a bad PF blogger I guess, but that’s the situation!

  23. Our emergency fund (i.e. amount in a savings account) is about $25K, which would cover us for about a year without significantly changing our lifestyles. I tend to be very conservative with estimates and overall financial cushion, so I know I am saving more than I need at this time. As I get more comfortable with our overall financial situation, I will probably reduce this cash fund with the understanding that I will have other liquid assets I can utilize in an emergency (mutual funds), even if I take a loss in doing so.

  24. I have just over $5k in an emergency fund, which we’re working to get to $10k, which would be 3-4 months of expenses. I’d ideally like 18 months though, since I’m self-employed and my income can fluctuate greatly. I also don’t have unemployment to fall back on if something goes wrong. Additionally, I have some medical issues (just asthma, but it’s chronic, severe, and has no known trigger, which means everything triggers it :)), and I want to make sure that we’re okay if something happens to me. My BF is healthy as a horse, but, well, ish happens…

    Once we get to $10k, we’ll likely go back to fully funding retirement (neither of us have workplace plans at the time), and splitting the remainder between paying down student loans ($370k) and saving for a down payment.

  25. We have en EF of about 65k, spread around different accounts and banks. This is about 20 months of living, probably 24 if we take care. We own our house outright and have full medical coverage (Europe) but both our incomes are very irregular and we have 4 kids so we strongly feel that 24 months of security is a minimum. About 5 years ago we both lost our jobs within 4 weeks and thanks to our comfortable EF we had very little stress.

  26. I think we would be happy with about 6-12 months of our expenses in an emergency e-fund. We currently have over 150k sitting in a few accounts but not just savings accounts. The reason it is there is that we are going to be paying the mortgage in full. We didn’t do any investing in the past 3 years with part of the money which we could have but decided to keep it where it is. If that was silly,so be it but no more mortgage before 4 years of owning the house sounds good to me! Great post mate and good luck with the house hunt you have a great downpayment! Mr.CBB

  27. We have about 7000 in our EF, which is about 4 month living expenses, and thats pretty much buying whatever we want. If we cut down drastically we could probably stretch it to 6 months. Its more than enough considering half of our income is spend on living expenses and I only work 10 hours a week.

  28. I have just over $12,000 in my emergency savings account. That would last me about 5 months on my “emergency budget”, like someone else mentioned. But I could pull an extra 3 months out of my Roth and liquid savings. I keep $1000 in my savings account that’s attached to my checking, just in case I need to make a quick transfer or pull some amount in cash from an ATM.

    Saving 8 months in emergency funds was my goal, and I’m really pleased to have met it. However, I was recently overwhelmed with the feeling of “what’s next”? I can’t decide where to put the money I was putting into my emergency fund. Throw it all at a Roth? Save to pay my next car in cash? Save for my potential wedding? Or, most overwhelming, save for a downpayment on a house? It’s amazing I’m so panicked about this, when I have $12,000 sitting in savings.

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