Emergency Fund: with "Extras"?

I would keep the extras, then you can cut out the extras, to make it last longer if things are gettting close.

I would not take into account severance, that can change at any time.

Good planning.

J.:

Ours was a stripped down budget. We neglected to include COBRA costs when we planned before - so our savings would have lasted longer had we not had the $1500 a month in COBRA payments.

When my husband was laid off, we stopped going out every weekend, etc. and made sure all subscriptions that were not necessary - were stopped. We, however, did NOT stop having fun. If it meant playing games and renting a movie instead of going to one? So be it. You can't stop living...

We do not account for severance packages or golden parachutes as those are NOT guaranteed.

You'll want to START with a "bare bones" fund. Which would pay the bills if you tightened your belt and got rid of extras. Once you have that, start adding money to be able to keep your extras.

An interesting tidbit of information to consider: The average person who loses their job, according to the department of labor and statistics, remains unemployed for 9 months and 3 weeks. That's the average...which means it could be more or less. With that knowledge, I am changing my plan from a 6 month fund to a 1 year fund.

I don't think you should take into account the severance, you just never know if that is for sure.. However, I would try and save a year's worth of money.. To me, this should include bills, food, medical and something extra .
Also, when we had to pay our own insurance, we didn't use the Cobra because it was a bit pricy.. Whenever we did medical, we shopped around and got some good deals. Example, my husband needed a Cat scan and via insurance, it was in the thousands.. when you pay cash, we got it for a couple of hundred.. Having insurance isn't always the cheapest bet..

I would also suggest to cut back now in general, it can't hurt.. For example, years ago when we decided to try and pay off our house, we stopped buying coffee out and brought our lunch to work each day. When then took the money we saved and put it toward the principal of our house".. definitely take steps now with every day things..

6 months severance I would not count on. If it's that likely, then probably you can count on a few weeks but I woudn't count on more than that. Look at all the unexpected bankruptcies of large, well established companies the past several years. We don't have a mortgage, college is paid for in advance etc so I'm not looking at this for us but if I was, I would certainly include extras bc they might just offset all the "unexpected's". Seems like as kids get older, there are more and more things to pay for that are unplanned. I'd hate to have skimp on those if I could have just put the money aside. What else would you use it for? Nowadays, 401k's etc aren't nearly enough to fund retirement so even maxing out a 401k and/or IRA isn't enough. I'd be saving more and then if you need it bc your husband is laid off, it's there. If you don't need it, then retirement is comfortable and/or pay for college if you don't have separate savings for that already. Just seems like you're splitting hairs some. Always better to be very safe than sorry. I saw your other question about 6 months saved and why not make it a year and put the 2nd 6 months in conservative but liquid investments? That way you're not forfeiting all the potential investment returns but your downside risk is fairly low and you can easily access the money. So a bond fund, high quality stock fund. Not a house or any retirement accoutns that have a penalty for early withdrawal.

ETA: Isn't using your retirement money for an emergency exactly what you said in your other post?... And I resent being called stupid as well. I will happily compare net worths. Plenty of very wealthy people have cash stockpiles. I guess it's bc we're wealthy enough to be able to have both investments and cash. But realistically, we could more easily gamble all our money in the stock market bc we have a much bigger cushion. If you don't have that big a cushion, and it sounds like you don't, you should have some cash. All other assets can plummet without much warning just when you need them. If 6 months of expenses in cash is a "large" sum of money to you, it means your net worth is small and therefore you should be even more conservative. If your net worth is large, 6 months of expenses should be so small by comparison that the loss of investment income on that piece of cash is not worth worrying about.

It should be6 mid. To 1 year of monthly expenses.
If need be (God forbid) you could make it last longer by paring back "extras."
I think this is splitting hairs.
Yes, "lifestyle" can always be cut, but is be realistic and save current expenses. People that are just starting to save can start by saving 6-12 months of rent or mortgage.

Extras is what gets us in trouble. When I am down to bare bone money--like this upcoming month due to medical bill for an out of pocket procedure--I say ok no pedicure, no eating out, no unnecessary shopping, etc.

I include all of the extra's and not take severance into account.

You don't count on money that you do not have on hand which is.... any bonus for the year or any severence.

You only count funds that are in your hands, already in your accounts, etc.

IF you do end up getting severance, then you are eligible for COBRA for insurance and that costs through the nose but it is something families need so they are covered in the even of an emergency.

You prioritize and plan and then if the worst happens, you are not devastated financially.

I do not consider a newspaper subscription or dining out an "emergency". That belongs as a regular line item in your budget.

And let me tell you a cautionary tale about severance packages... better go read your husband's employee handbook because more than likely if he is FIRED he is SOL as far as severance goes. Severances are usually reserved for corporate reorganizations and furloughs. If you think for a minute that your husband would NEVER be FIRED, FIRED then think again. Unless you live in Montana the other 49 states have a little thing called "employment at will" and he could be fired at anytime for ANY reason. You can try to contest it but unless he is covered by collective bargaining or a contract you really don't have a leg to stand on to contest the firing. I know of what I speak because it happened to us and fortunately all turned out okay. You NEVER think it could happen to you until it does and let me tell you. It SUCKS!

ETA : As Cheryl said, a line item in your "Emergency Fund" budget NEEDS to be COBRA. She is not kidding that you will need an extra $1500 a month for it. Ours was actually over $2,000 a month. So take your emergency expenses and add an additional $2,000 to it per month.

ETA 2: I saw you other post after this and I would never consider my retirement accounts as an emergency fund because I would not ever want to rob Peter to pay Paul.

If he gets fired, he gets severance pay. If he gets laid off... he gets NOTHING, so don't factor that into ANYTHING. Careful calling people "stupid" when you are asking whether or not you should factor dinner and a movie into your "emergency fund".

Having said that, our one-year "emergency fund" would cover our bills. There is more than enough there to cover:
- Mortgage
- Health Insurance
- Utilities (no cable)
- Student Loan
- Car Insurance
- Home owner's insurance
- Taxes
- Tuition
- Small Christmas/ Kids birthday
- Food and basic health care costs

If we need to dip into that fund, it won't be for entertainment purposes, subscriptions, dining out (really?) or manis/pedis. We have a spreadsheet where we keep track of our "estimated costs" and "actual costs" each month. Whatever is "leftover", goes into savings. We budget monthly for "extras" and that's also where we find our "leftovers". When my husband balances the sheet every month, we talk about where we underestimated and why.

If we had to go into our emergency fund, ALL non-essential purchases and expenditures would be eliminated. We talk about this frequently, as we are currently living on my salary alone while my husband is job hunting (we relocated). We're fine and haven't had to touch our savings, but this is an on-going dialogue for us.

We have found a lot of really inexpensive things to do with our kids and they have not felt the "pinch"... then again our house is 3 miles from the ocean so packing a cooler and heading to the beach is always a welcome/fun/cheap activity!

Never Ever Count On Umemployment Or Severence As A Guaranteed Income Source. Rely On Your Savings, Which Should Be Ideally 1 Year No Thrills Budget Or AT Least A SIx Month At Your.Current Spending Rate. Then If He Does Ge Fired pLan For A Worst Case Scenario And Drop Every Unrequire Item Of Spending You Can Until He Is Employed Again, To Stretch It Further If You Are StaY At Home, You Would Get A Part Time Job. And One That Offers Benefits So Cobra Doesn't Eat$$. So Cable Tv, Eating Out, Unplanned Store Trips, Texting Packages, Memberships ToGyms. Never Bank That It WIll Take Only 6 Months, My Husband Was Out 2 Years Let Go 2 Weeks Before Our 1St Child Was Born. LookiNg For Work In This Day Takes 40 To60 Hours A Week To Have A Job Come That Will Be What You Need To Keep You In Your Lifestyle.

I include mortgage, utilities (including internet, because it would be hard to job search without internet access), life insurance, groceries, and some extra for gas, etc.

But not true 'extras' like eating out or the pool membership. And I don't include daycare because if someone were home, we wouldn't need that. I also don't include our monthly contributions to retirement.

Neither of us get severance, so nothing to consider there.

hey there, the way I do my extras monthly is I have a separate checking acct I put in to pay for non-monthly expenses
for emergencies, I've got money put back ONLY for essentials. b/c in even of emergency, EVERYTHING would go, lol :)