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Join our participants as they reduce debt and increase savings with the help of Summit financial coaches.
Join our participants as they reduce debt and increase savings with the help of Summit financial coaches.
Krystal and Alisa's Journey:
Emergency Schmergency
In the (continued) days of #yolo, who really wants to think about something negative that could come. It’s like insurance – you don’t want to pay for it, but you also want a safety plan in case of an unexpected life event. So, while we technically both have an emergency savings, it is where ALL of our savings has been and we’ve never really sat down to decide what is the base amount that we should be keeping in our individual accounts as a base amount. Spoiler alert – it’s not so cut and dry to figure out just how much to keep in there and/or set a savings amount for.
For us, perhaps we complicate this a bit as we have separate accounts for our individual bills and then also a joint account for our house and all household related expenses. For our joint savings account, since we bought our house in 2019, we have always kept a base amount in that account which is for our homeowner’s insurance deductible and a little extra cushion for other increases (i.e., tax bill), but our individual emergency savings accounts have been harder to sort out. To assist with this, our coach recently gave us an article to read that would assist us in deciding how much of our individual savings we keep at $X for an emergency account, which will then allow us to strategically place the remaining funds, as well as additional future funds, towards our debts and/or investments.
So how much do you save? Some say at least six months; others say no more than three as you are losing interest that could be earned elsewhere; and for the extreme’s, a whole year! Honestly, we feel a whole year’s worth is just silly and doesn’t fit our situation, so we’re going to focus on whether you should save for three or six months? We’ve compared the different scenarios side by side below:
|
How much savings? |
3 months’ worth |
6 months’ worth |
|
Cost of living |
Low cost of living area |
High cost of living area |
|
Car |
Reliable |
Unreliable |
|
Household |
Rent |
Own (especially if an older house) |
|
Job |
Stable (could easily find work at similar pay) |
Unstable (seasonal), freelance or part-time |
|
Health |
Relatively healthy and little to no monthly medical expenses |
Have medical condition or like to participate in high-risk (sport) activities |
|
Dependents |
No dependents |
Kids, pets, and/or other family members that you support |
|
Debt |
Little to no debt |
Moderate to heavy debt |
|
Financial Support |
Family could help in tough times |
Family could not help in tough times |
So, where do we land with all this? As we’re both visual people and this involves some ‘talking it out’, we’ll talk out why we chose the categories we did.
|
Item |
Cost of Living |
3 months |
6 months |
|
Cost of Living |
Milwaukee has a relatively moderate low cost of living, but since it is a city with rising taxes, utilities bills, etc.…we’ll put it in the 6-month category. |
|
X |
|
Car |
We minimized to one car during the pandemic and as it is also a lease we hold a warranty for any major repairs, so we’ll put this in the 3 month category. |
X |
|
|
Household |
We own our home and while it is coming up on being 90 years old, the previous owners did a lot of renovations and we do have a home warranty plan, so we’ll put this in the 3 month category. |
X |
|
|
Job |
As we both have college degrees, are each going for our Masters, and both have pretty diverse work backgrounds and skills, we will put this in the 3 month category. |
X |
|
|
Health |
We are both pretty healthy and each contribute to a Health Savings Account (HSA), this will be a 3 month expense. |
X |
|
|
Dependents |
As we do have our adorable pup Chai, who has a nose that gets her tummy in trouble, we definitely need this to be a 6 month category. |
|
X |
|
Debt |
We both have some credit card debt, but as, I, Krystal did my undergrad a decade after Alisa, my school debt is far more than her’s. Overall, this should likely be a 6 month category for the both of us. |
|
X |
|
Financial Support |
We are both very independent people and got where we are today with little to no (financial) help from our parents. While each of our parent groups could easily help us if we needed it, they are all nearing retirement, and we would likely never ask. This will be a 6-month category. |
|
X |
Well, shucks – we have a tie breaker. From here, it’s really about comfortability and doing what you think makes the most sense for your household. While we do have some high expenses, six months seems to be a wee bit too much. As Alisa’s debt is a lower than mine, and she also has a part time job, she will keep four months of expenses in an emergency savings account, while I will do five.
Come back next week to read about where you should keep your emergency savings.