Earlier this week there was a discussion at getrichslowly.org about a poll they had done about emergency funds.
One of the findings was that the amount people were saving in their emergency funds seems to be dwindling over the past 5-6 months.
After reading that post I started looking for other polls to find out how many people are actually saving up an emergency fund in the first place, and to see what they believe is a good place to get their emergency money.
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Poll About Emergency Funds
The numbers seem to vary a bit depending upon the source, however, I found a Gallup poll from a few years back that found only about 4 in 10 Americans say they actually have cash on hand in case of an emergency. Only 10% say they have $1,000 in cash available in case of an emergency.
When you dig a little deeper you find that a lot of people aren't depending mainly on cash savings to bail them out in case of an emergency.
Three in four consumers say they would use their savings account as a money source in case of an emergency. Fifty-six percent say they would use credit cards and 50% would borrow from a relative. Thirty-nine percent say they would use their 401k retirement account and 37% say they would use their home equity account.
So besides cash savings (75%), people say they would use these sources to help pay for an emergency:
- Credit cards (56%)
- Borrow from relatives (50%)
- 401k retirement account (39%)
- Home equity loan (37%)
Based on the fact that only 10% say that they have $1,000 in cash on hand for an emergency, and the fact that so many are depending upon other ill-advised sources of emergency money, I'd have to say people are in general woefully under-prepared.
How Much Money Are You Saving?
So the question is this – how much money are you saving in your emergency fund? Most experts (like Dave Ramsey) will suggest that you save at least 3-6 months of expenses in an accessible cash account.
Personally I think that's a good start, but at our house we usually fall more on the conservative side of things because of the large number of emergencies we've experienced in the past 3-4 years (hospitalizations, baby, car troubles).
We're currently sitting on a nice 10 month cash reserve in our online savings account, and we're building it to 12 months. With the economy as it is, and with one spouse staying home to be with our son, we just feel more comfortable having a bigger cushion in case something were to happen. And something WILL happen.
Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time.
Have You Had To Use Your Emergency Fund Yet?
Another question for commenters: Have you had to dig into your emergency fund at any point yet? I'd be curious to know what types of expenses count as an emergency, and just how big those expenses were.
For us we've been in a state of continually renewing our emergency fund over the past few years. First my wife was in the hospital for several weeks, which ended up costing us several thousand dollars after insurance kicked in. Our emergency fund covered it, and we quickly refunded it.
We also had a car that died on us – when the engine decided to give up the ghost. Luckily we had saved up a car replacement fund, and only a small amount of our emergency fund was touched.
Next we had another hospitalization for my wife – again covered by insurance, and then by our emergency fund.
So as you can see – major negative events can and will occur – even frequently sometimes!
How much are you saving for your emergency fund? If you don't believe in having a large cash reserve, how will you be paying for any emergencies that crop up? Have you had to use an emergency fund yet? If you have, what was the emergency? Tell us your thoughts in the comments.
This is a great article. I really appreciate that you took the time to write it.
We had to get our a/c fixed, and my parents had to reach into their emergency fund for that $4,000. My parents have always been responsible with credit cards and my mom comes from a family that thinks it’s a sin to ask for money from family members. So saving is my mother’s specialty. And you’re right, emergencies always happen, and already in 2010, we’ve had 3.
Wow, 3 emergencies this year alone? That’s too bad, but good to plan ahead for those types of situations.
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I have enough put away for a one month reserve while paying down my debt. However, I would like to have at least a 3 month reserve to feel minutely comfortable. Great job with the 10 month reserve!
BTW, don’t ever use a retirement loan for an emergency {I only say this because I still owe on one}. Leave it for retirement. Act like the money doesn’t exist.
Feel free to add me to the gallery! :)
Good idea to act as if your retirement account doesn’t exist. Those 401k loans can be a bear to pay back!
We have about 4 months in a dedicated emergency fund as well as another 2-3 months in savings that is not really allocated to anything. We hit that savings first before hitting the emergency fund (that’s the plan anyways)
We have had emergencies that have came up, medical, etc that cost a couple thousand and this money came out of the overflow so our emergency fund hasn’t ever been touched though both accounts are there for the same purpose.
Hello! I’m a single, 24-year-old recent college grad and a personal finance blogger. My emergency fund is currently at $15K, which is 10 months worth of expenses. My ideal number would be $20K, not based on months-of-expenses, but just a solid figure. So far, I have not had to use my emergency fund but it’s there for when I need it!
That’s a nice solid e-fund though – you’re well on your way to 20k! Congrats!
Great article, I liked the details on the figures and the perspective on (what I think is) one of the most underrated components of personal finance.
I have used my emergency fund twice, I had to use my emerg fund one time about 2 years ago, when my car (10 years old, but was running okay at the time) suddenly died. The estimated cost to fix was around $2000, instead, I used my emergency fund to buy a used car (4 years old at the time and still have it – no lease/car loan). The only other time I used my emergency fund was in February 2009, I had run out of disposable cash to invest (lol) and could not resist a particular stock. Within two weeks my investment was down about 20% – and we had no way to know it at the time, but (luckily) this was the ‘bottom’. Currently that stock is off it’s recent high, but I still hold it and I’m up around 50% (+ dividends) and have since replenished my emerg fund to about 3-4 months worth. Not something that I would advocate, but in my particular case, I took a calculated risk and (again, luckily) it has worked out for me thus far.
Yeah, not something I’d suggest for most people, but I’m glad it worked out for you. :)
We had $1,500 in our emergency account (on our way to $2,500) and had to withdraw $1,200 for a few serious car repairs and unexpected “maintenance”. Once we get back up to $2500 we will then attack our debt more vigorously.
Aren’t you glad you had that money there to cover the expenses? I know in our case it was a load off my mind knowing we had the cash to pay for our emergencies.
Got about 4.5 months of expenses in our savings account, which we don’t draw from unless it’s an emergency or a major purchase that we’ve agreed upon. But since we’re still in the first year of owning a home, that isn’t often! We’re more interested in adding to it. Eventually, I’d love a full year’s worth of savings in case of an emergency, and I know we’ll get there, barring anything major.
Owning a home can be pretty expensive in itself. There are a thousand and one small expenses that go along with it that people often forget.
I’m sure you’ll get to that full year in short order!
Right now, we have only about a month or so’s worth of money in the EF, but it’s slowly growing.
The only time we’ve taken from it (and not used savings to cover what needed to be covered) was when I was diagnosed with cancer and was out of work for 6 months (and my employer screwed up my short-term disability so I didn’t actually get a check until two weeks after I started working again … which was also a new calendar year which didn’t do nice things to my taxes that year).
Last year, my husband had two surgeries, but our savings was able to absorb those costs. Car troubles (which are rare) and the like have been absorbed by savings.
Up until last summer our fund was up to ~12 months and was tapped to prevent an overdraw of our accounts for bigger unexpected expenses like $400 brake job followed by $700 tire/alignment/brakes on the other car.
Last summer/fall we decided to pay off our HELOC dropping our fund to ~6months. We built it up to 7 months and purchased a new home (old neighborhood became unsafe) and dropped down to ~1.5 months. Built it back up to 3 months (will be 6 once we get our tax credit refund) and are now contemplating paying down additional debt (low interest student loans) and leaving it at 1-2 months. If absolutely necessary we have other means such as the open HELOC and/or credit cards plus my wife can go back to work should something happen with my employment.
In an ideal world we would keep 9-12 months in an emergency fund but then again in an ideal world I would have so much money that it wouldn’t matter e.g. Bill Gates.