Emergency fund? How much?

Moom started his Asset Allocation Series. So I guess it is not surprising for him to write about Emergency Fund (EF), and introduced us to English Major Money’s (EMM) post. This was also our first time to participate in Carnival with a post on getting more tax returns for international students. I happened to find a controversial post by “Broke Now, Rick Later” (BNRL) in the Carnival. So I will share my thoughts here.

First, no emergency fund needed? I have to say that I admire BNRL’s courage. For a single-income household with 2 kids and a mortgage to pay, he has extremely low liquidity of $282. And he was advocating NO emergency fund needed. Make no mistake, he is stacking away 20% of his income in retirement savings, which is unlikely to be ready available for emergency. So he is trading his emergency fund as extra investments in retirement account. Before reading his post, I thought there were few people as described in moom’s comment. Now I think that there might be quite a few.

BNRL has 50% income to cover monthly necessities and 20% for retirement account. Considering tax withholdings and other expenses, the remaining 30% is unlikely to have any significant portion left. BNRL argued that you can always count on 0% APR installment payment combined with a delay in payment to pull the cash you need from either your salary or disability income. However, he maybe forgot that sometimes, “when it rains, it pours”. What if there were two or three unexpected on his list on going at the same time?

Second, how much emergency fund do you need? I stand by the standard recommendation of 3-6 month expense and suggest everyone to look at his/her own situation like EMM did. The amount will depend on both your needs and your risk attitude.
Needs (expenses): take a look at the monthly necessary expense. For renters like Jacqui and I, ours is less than 20% of our gross income. Two months’ salary gets us covered for a year.
Risk attitude (or personal preference): remember, everyone get unlucky some day in life. That’s why we’re paying for health and car insurance. I am very conservative, thus, may want to insure for situations of very small probability, say three or four unfortunate incidents happening at the same time; you may be more optimistic and want to just insure up to two. However, you really do not want to have no or poor preparations for them as they do happen.

Last, I think having an EF is one necessary step for anyone to get started on investment and retirement savings. I will share my experience later.

Cooking skills and personal finance.

Just read my money blog (MMB) expenses. As a housewife, the first thing I noticed is grocery spending. MMB’s budget for grocery is $300, dining out is $250. Last year, our budget for grocery was a poor $250. I hit budget several times, which made me very unhappy. I consider myself a deal shopper, which is one of the attributes of a “good” housewife (my definition). When MS Money showed that I always hit budget for grocery shopping, I felt… hurt!!!

So I negotiated with Yannick to increase the grocery budget to $300 this year. I know this is a little like “cheating”, but at that time, psychologically, I really need it.

Now, reading MMB, I just found a new solution to solve the budget problem. Our dining out expense is almost zero! I am attributing this to my successful grocery shopping — I do not just shop for deals, I shop for deals of good quality products. I feed Yannick with premium food from organic food store, so he does not want to dine out any more!

I presented this argument to Yannick immediately, and got an instant budget re-allocation approval– we will allocate $100 out of our $150 dining out budget to my grocery shopping! Now, I will always spend below budget. “Exceed expectation”, that’s the review I want to get for my work!

My next mission–improve my cooking skills. I heard that many famous chefs actually used very common ingredients — such as Heinz ketchup, Morton salt…Why can’t I? Someday, I want to hear Yannick saying: “I would rather have Jacqui’s cabbage soup than Arby’s roasted beef burger” (he sometimes indicates that he wants to go to Wendy’s, but dismissed by me for “health” reasons. 🙂

Improving cooking is one of the most rewarding investments a housewife can make: it keeps the family stay at home, it keeps the family healthy, it keeps the family money in the investment account grow… it keeps the whole family happy!