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Exploring the Anatomy of an Emergency Fund

emergency fund Sep 03, 2019

This summer we made a big change in our lives and decided it was time to move.  Our house was starting to feel a bit cramped for many of the ministries we lead, and our backyard just felt too confining with our pool and outdoor kitchen taking up all of the limited space we had.  With two little girls who are really active there was no space to run and play safely.  So, we pulled the trigger and put our house on the market.

Does that sound like a silly excuse to buy a big house on two acres? 

Yes, it does, and we realize we were truly blessed to have the ability to do so, and don’t take it for granted.  In essence, the changes we made this summer are a direct result of having no debt.  It’s taken many years, but now the wise decisions we’ve made are paying off.  Regardless if your dream is a 5,000 square foot house on two acres or something completely different, know that diligence pays dividends, but it may take years before you can cash them in.  Persevere and you will succeed! 

The fun begins.

We live in a hot real estate market, so it didn’t take long for our house to sell.  The great thing was we already had our new house selected and in contract for purchase before the sale of our home.  The timing couldn’t have been any more perfect with the closing on the new house just a few weeks before the close of the old house.  Now that we’ve moved and are starting to settle into living in our new home, which we’re going to be paying off with the proceed of our old house, we thought it might be a good time to reevaluate our current emergency fund (EF).

In this blog we’ll refresh you on EF 101 basics and share our process to review and update our EF that may help you do the same.

This brings up a suggestion that any time you have a major change in your life like moving, having children, getting married, taking on a mortgage, etc. it’s always a good idea to reevaluate your EF to ensure the change doesn’t require a larger (or smaller in some cases) amount of cash on hand.  We recommend that once a year you take a look at your monthly expenses and adjust accordingly.

How much should you have in your EF?

The typical answer is, “it depends”.  It depends on factors such as how secure you are with your job, how likely your financial picture may change in the near future, how prudent or courageous you are when it comes to financial matters.  In general, we suggest having 3-6 months of monthly expenses in your EF.

If you’re still in debt, we suggest a “Starter EF” that equals one month of your take-home pay.  In general, the most common types of emergencies for young attending doctors are transportation problems with your vehicle such as the transmission going out, and home problems related to such things as plumbing and roofing issues.  A month’s salary is more than enough to cover these types of emergencies.  Just keep in mind the bigger you make your EF while you’re in debt the longer it will take to get out of debt.

One final thought is where to keep your EF.  We’ve been keeping our fund in a simple savings account at our bank but will be moving it to a high interest account (a little over 2% at the moment) to earn something on the money and still have it liquid for an emergency.  This doesn’t seem like much interest, and it isn’t, but in the time we’ve had our fund we could have made several thousand dollars in interest even at the paltry rates available today. 

Never ever put your EF in anything that could lose value!  The reason for an EF is not to make money, but to have money when you need it!  Don’t risk not having cash on hand when an emergency comes up all for the sake of making a few dollars, or in some cases, losing a lot of your emergency dollars!

Anatomy of an EF.

Here’s a look at how we’ve developed our EF that may help you further craft yours.  At the core of an EF should be only your monthly “needs”.  Everyone defines needs differently, but in essence the most basic needs include food, utilities, transportation, housing, insurance.  We all need food to survive so it’s #1 on the list.  Electricity, water, and gas come second.  We put transportation (i.e. gas, maintenance) third because it’s usually a key element in earning your income.  Housing and insurance wrap up what we would consider basic must have needs.

For us paying our house off in the next month or two we’ve excluded it from our list of basic needs listed below.  We also are in the process of having solar installed to bring our annual electricity costs to near zero.

Basic Needs

$800    Food                 

$500    Utilities           

$200    Transportation (gas for cars)

$1,000 Property taxes



$100    Term Life

$250    Long Term Disability

$1,500 Health Insurance (replacement plan if we were to lose current coverage)

$150    Auto

$170    Home

$50      Umbrella


What’s listed below are not actual “needs”, but more so “wants” that feel like needs in our modern times.  We could probably survive without cell phones, but it would be a challenge in our world to have no phone and survive, especially if we were unemployed and looking for a job.

Personal Needs

$1,100 Tuition / Daycare

$135    Phones

$110    Internet          

$200    Costco / Target (household goods)


With a house and property of our size we decided it’s necessary to keep the place up even in a time of emergency.  Maybe if things got really bad we could clean, mow, and take care of the pool, but we’d rather be spending that time working to get out of the emergency than sitting on a lawnmower or scrubbing toilets.

Housing Needs

$450    Gardner

$300    Housekeeper

$125    Pest Control

$45      Alarm

$100    Pool


$7,285 Total Monthly Expenses

Now that we have a total monthly expense estimated to be around $7K, the next question we faced was how many months of savings should we have on hand?  Previously, we had six months expenses on hand, but it was only $30K, so our analysis shows, which should be no surprise, living in a bigger house on a bigger property costs more money!

 As mentioned previously, how many months you have saved is a personal decision.  We’re somewhat risk averse so we like having six months on hand so we’re going to beef up our emergency fund from $30K to $40K. 

It’s your turn.  What are you going to do?

Now let’s turn to you and your EF.  If you’re getting out of debt stick to the one month’s salary rule-of-thumb.  If you already have more than that in savings throw the rest at your debt.  If you don’t have this much in savings make a plan to put aside some cash each pay period to get your Starter EF fully funded in the next few months.  

If you’re out of debt, first congrats on being in a great position to begin or continue to build wealth, then look at the anatomy of your monthly spending to determine the right sized EF that works for you and your family.

There are two types of people in this world.  Those who have had an emergency and those who will have an emergency.  Be prepared for what is likely to come, and it will be less of an emergency.  With money in the bank it will be one thing less to focus on during a stressful time, and chances are you will work your way out of the emergency much faster by being prepared. 


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