So I've recently decided to stop focusing on extra debt repay in the new year and try to save up emergency fund/baby fund money instead.
Question for those of you who already have emergency funds: How do you calculate a month's expenses? I went through much more of a thought process than I expected to when setting up my amount:
- I figured I could drop my cable and Internet with no penalty, but it would cost so much to cancel our three cell phones that it would be less financial stress to keep them going in an emergency, and I'm already at the cheapest family plan I could find.
- I dropped all fun money categories except $20 per week per person, knowing that in extreme privation we could of course drop that too.
- I was going to slash our rather extravagant household/grocery expense category a lot, but then I figured there was a chance I'd be expecting or have a child, so I couldn't have too little in that category. I took it down from $900 to $600.
- Two of the student loans are government issued, and I know from experience that you can get those deferred fairly easily in times of financial woe, so I cut those out of the emergency expenses.
- Our condo costs nearly $2000 per month between mortgage and association dues (which include utilities), and I know I could rent an adequate place in our neighborhood for half that. However, the financial ruin it would cause to walk away from the place or try to sell it in a way-down market makes me think I should factor in those costs and try to keep the place in an emergency. For this same reason I decided I would keep homeowner's insurance if possible.
- One of our bus passes is free due to work and school, and two of them we get at a reduced rate. But assuming a true emergency would mean none of us could work (and we'd want to drop school so as not to incur further debt), I had to add $85 per person to the budget for monthly bus passes, so we could all get around during our imagined emergency.
- I was going to cut out barber completely, until I realized that we would be looking for work and need to look at least passable. So I thought maybe one of us could skip the barber each month, and I allocated $40 instead of $60 per month.
- If none of us could work, we'd need to purchase health insurance. I decided to allocate $1200 for that, because AS applied for health insurance recently and it will cost $400 per month to pay the $100 fee and save up enough money to cover the annual deductible. Of course best-case scenario we wouldn't go through the entire deductible, but this year has taught me you can't assume that just because you think you're healthy.
So all told, a month of emergency expenses would be $5,451.43. Yikes, it will take a while just to save one month's worth. I could probably get it down more if NT and I could find health insurance together and if I spent less on grocery/household expenses. But that is my best estimate. Here's the breakdown if anyone is interested in the details, and feel free to give your opinion (I'm new to figuring this sort of thing out):
Monthly expenses need for emergency fund (estimated)
Set aside for Nationwide annual bill ($240 on Feb. 26) -$20.00
Bus passes (3 @ $85) -$255.00
Cell phones -$83.00
Personal loan -$622.67
Spending money -$65.00
16th-31st groceries/household -$300.00
Spending money -$65.00
Barber -$40.00
Health care -$1,200.00
Mortgage -$1,436.03
1st-15th groceries/household -$300.00
Spending money -$65.00
AS student loan #1 -$64.08
Credit card -$275.00
Condo association -$548.64
Spending money -$65.00
NT student loan -$47.01
TOTAL -$5,451.43
EDIT: I'm still considering what my goals should be, but one thing I did accomplish was cut spending money and reduce grocery money in my emergency budget, so I've got it down to $4,991.43.
Calculating a month's expenses in an emergency
December 8th, 2008 at 06:32 pm
December 8th, 2008 at 06:50 pm 1228762245
5.5k in an EF makes little sense when you have 39k in immediate debt.
In addition do not include the following in EF (IMO):
Spending money -$65.00
Credit card -$275.00
Health care -$1,200.00
16th-31st groceries/household -$300.00
Set aside for Nationwide annual bill ($240 on Feb. 26) -$20.00
Bus passes (3 @ $85) -$255.00
Cell phones -$83.00
Personal loan -$622.67
Spending money -$65.00
If the 5k is the only expenses in the EF (1 months expenses) you really have a goal to "get one month ahead" and not have "true savings" from where I sit. Might be semantics...
Here are my thoughts-
If I lose a job, I can live off my pantry for close to 1 month. I have before and can do so again. Remove all groceries from EF.
No spending money needed if I lose my job either, remove that from EF.
Try to pay 2 CC bills in same month- so in December pay the december bill now, then pay Jan bill 2 weeks later. In Jan pay it again- you will be one month ahead- so you will earn in Jan what you pay in Feb- no need to have this be in budget and you actually pay down your balance in the process.
If you lost job, would you need the bus passes?
The key bills to save for are what you do not want to lose if you lose a job- the mortgage payment and HOA payment for example. Everything else is really optional.
I earn in December for the Bills I pay in January- so if I work this month, I know next months bills are paid for. Try to get to that point by paying bills early over a 3 month span and the need for savings will be lower.
You have around 38k or 29k of cc debt you need to decrease... that is the goal and once that is paid off, it will be much easier to manage on such tight finances.
December 8th, 2008 at 06:53 pm 1228762395
In a real emergency my wife could work 40 hours a week instead of 6 a week or every other week, which could further extend the emergency fund.
So I say, go conservative. Use expenses today and multiple by 6. Is having a slightly large EF then you need a bad thing?
December 8th, 2008 at 06:56 pm 1228762598
You have a pretty commprehensive grip on what your breakdowns are! Good for you. Mine are vague, but here it goes:
Mortgage - $1,750
Insurance (properties/one car/life) - $140
Basic Internet - $10 (like netzero)
Basic prepaid cell phone - $30
Budget plan electric/gas - $300
Water/sewer - $75
Household/groceries/pet - $500
Minimum credit cards - $150
COBRA insurance - $1,100
Roughly $4,000/month - I presently have $9,000 saved
I would take advance of deferment of my student loan payment. Cable would go. All grocery shopping would be limited to $125/week for gas and groceries. My kids' school would waive tuition. Thankfully the kids' grandparents would chip in for their activities (which aside from the dance is nominal). My DH's severance is two months pay plus three months of health coverage at our present cost. DH does have the chance for working for my father to make money to subsidize his salary loss.
December 8th, 2008 at 08:06 pm 1228766785
Jim: I pay my bills the day I get them, so in reality I'm almost a month ahead on some of them. Good point on living off the pantry; I don't know if we have a month's worth but we certainly could do a few weeks just with what we have. I will lower that and cut spending money. I assume we'd need bus fare to look for work, since we don't have cars. You think healthcare isn't one of the factors I should consider, though? Really, losing the house would be less catastrophic than if one of us had a health emergency and racked up half a mil in medical bills. Also, do you think saving an EF makes no sense even if I'm going to try and get pregnant? This is all speculative, but I don't know if I should get pregnant if I don't have any money saved, especially with credit card co's lowering credit limits left and right. Oh, and about getting one month ahead: I was thinking about getting 3-6 months of expenses saved, so I'd have to consider more than one month. I know it seems nuts with what I owe, but this is a nutso economy and I feel like I should have something in reserve, even if it is costing me in interest fees.
momsents: In an extreme emergency, I know my dad would help me out, so that is a bit of a comfort zone I didn't factor in. Mostly because I don't want to lean on him again; he makes it too easy!
December 8th, 2008 at 08:12 pm 1228767159
For a monthly EF amount I used our family monthly income - based on DH's monthly take-home pay. . . which seems to be quite a bit less than many here, LOL. But we're making it work. We might be able to drop some expenses in that case but we'd have to pay more directly for health insurance. We pay that now but it's taken out of DH's check pre-tax so I never see it.
I disagree with Jim
December 9th, 2008 at 06:31 am 1228804269
$5451 / 3 = $1817
Each of you only has to bring in $1817 a month to cover your emergency bills.
$1817 / 160 = $11.35. If you all worked 40 hours a week, you only have to get a job for $11.35 an hour (after taxes) to make it. I would think that is doable, no matter what the state of the economy or the emergency.
Might be a little simplistic, but with three potential incomes and no other obligations (kids) I wouldn't be so worried about a huge emergency fund.
December 9th, 2008 at 07:54 am 1228809276
December 9th, 2008 at 01:25 pm 1228829131
For me and my wife, we had 2 rules: 1) the EF had to be liquid like in a MM fund 2) who ever had the highest number wins. My wife wanted 8 months of current expenses saved for an EF. That's our EF.
So, I would say to go back to the household and ask them what they feel would be a comfortable number. Personally, I have no problem going conservative on an EF.
As far as the baby fund - when you become pregnant, I would stop all extra payments on debt and investing and stickpile the money. Once you have the baby and everything is fine, then throw that at your debt.
Good luck on the baby.
December 9th, 2008 at 09:06 pm 1228856802
My monthly net income X 12. This is padded figure because I do manage to save a little from my monthly pension.
Now that I think of it, I guess what I'm doing is overkill since the odds of my pension system faltering is slim. But it is reassuring to have this $$ set aside for a different type of emergency other than losing my "job."
One note about the baby fund: I like Merch's idea about stopping the extra debt repayment once you get pregnant. Then you can save the extra for baby expenses or just to beef up the E-fund. Hopefully, your and NT's benefits will pay for prenatal care and delivery and you will have paid maternity/paternity leave or family leave.