As a reminder, an emergency fund should be used for unplanned events. That doesn't mean the holidays or traveling. These are things you should plan in advance for... I mean we all know that birthdays, anniversaries and holidays come at the same time every year. Set up a slush fund and tuck some funds away to cover those types of events throughout the year. A true emergency fund, on the other hand is designed to sit there. That way if an honest to goodness emergency comes your way (job loss, accident, etc.) you have the funds you need to get through it.
Emergency funds should also remain liquid and not be invested. You shouldn't worry about taking a loss, or selling shares to access these types of dollars. Keep it liquid and easy to obtain if you needed to get a hold of the money ASAP -- but outside your regular checking account so its not easy to dip into. We keep our emergency fund in a savings account that's linked to our primary checking account so we can transfer money and funds if needed, but we also can't just swipe a debit card or cut a check to access the funds in an instant. We would need to log into the account and set up a transfer first.
Our Emergency fund currently has $16,865.70 in it and this is our bare bones budget: (toddler would be pulled from daycare asap).
We also have $2,000 padding in our checking accounts, so i'm not too worried about adding more to this account this year with all the renovations we have planned (also because if I lost my job, my substantial PTO would need to be paid out).
I'm also not sure about listing Health Insurance... We wouldn't use cobra because it's too expensive, but if we both lost our jobs, i'm not sure i'd decide to drop almost the amount of our mortgage on insurance... especially since it's no longer illegal...
and we would apply for unemployment which would bring in additional cash reserves.
More than likely, only one of us would be unemployed at the same time. Luckily, we plan all of our expenses based around my base salary... so if hubs quit or lost his job, we could cash flow our expenses for the year without hitting our emergency fund at all. He would apply for Unemployment and job hunt while watching little man.
Where it becomes interesting, is if I were to loose my job. I would have approximately 300-400 hours of PTO that would be paid out, which would inflate our emergency fund $7500- $10,000 before taxes... I make it a habit to keep a health stock of paid time off in case we A) decide to grow our family.... and B) to inflate my pension when I retire since I have a formula with 1 year final compensation... but that isn't factored below...
We would also probably see if we could get insurance through his work for less than covered California... or consider forgoing it as I mentioned above... But depending on when in the year I loose my job, we would/could qualify for health insurance subsidies based just on his income... which would make it only $3 a month if our income for the year is expected to be $40k or less....
I'd also apply for unemployment and job hunt while I watched little dude at home. Additionally we would also halt retirement contributions, which would inflate his take home pay more then is listed below (which is his current take home pay)....
I love our emergency fund and it let's me sleep well at night knowing we have been responsible and have taken the steps necessary to take care of our family. It took us a while to get it to this current funding point... but looking back, i'm so glad we took the steps to save. If you don't have an emergency fund set up, start today.
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