Ask HN: How much to put into a personal emergency savings fund?

[theforceawakens]

People say 6-12 months. I believe it varies by risk profile and career standing.

Did someone just pick a number? What is the math involved? And does anyone have a first hand experience in having to live without any income for 6-12 months / essentially tapping in money from the emergency savings?

P.S. - I am a programmer, in my mid 20's. I can't fathom the fact that I need 6-12 months of savings sitting in a money market fund, that earns a few pennies in interest every month. Rather, I would save 3 months of cash. And put the rest in mutual funds (Vanguard low-cost ETFs).

P.S. 2 - No car payments, no student loans, no mortgage.

[nostrademons]

You want enough that you have a reasonable chance of making adaptations in your lifestyle if you lost your job. "Adaptations" includes finding a new job, downsizing to a smaller home or apartment, or moving to a new metropolitan area.

3 months is taking a pretty big risk. If you're in your mid-20s, you've never lived through a recession. It is possible to lose your job concurrently with the stock market losing 50% of its value concurrently with nobody in your industry hiring for 6-12 months (indeed, that number is often picked so that you can ride out the worst of a recession). If you have other assets and no debt, you at least won't be penniless and on the street, but you can be forced to sell stocks & mutual funds at fire-sale prices and wipe out much of your net worth if a downturn happens. Or you may end up having to take a job that sets you back a couple years in career progression rather than being able to wait for the right opportunity to come around.

[cauterized]

I'd set three milestone goals:

1) enough to weather a one-time unexpected event and necessary expense without going into debt (car needs brakes replaced, dog needs surgery, someone spills an entire frappuccino into your open laptop, you break a bone and have medical bills, you need to fly cross-country for a good friend's wedding, etc). For most people, $1000-2500 is enough for this. Keep it in an interest-bearing checking account or a "high yield" (yeah, right) savings account that supports easy transfers to checking. There is a 99.9999% chance you will need this money in the next 10 years. This is the money that keeps you off the knife's edge of a debt spiral.

2) enough to live on for 1-3 months of unemployment. Even if you can easily get a programming job within a month now, that may not be the case if the startup bubble bursts. And besides, even now you don't want to be beholden to the first thing you find. If the first job you take turns out in the first couple months to be a nightmare, you'll need to be ready to handle another month or more of unemployment while you find something better. Or you can afford to take a month of vacation to recover from burnout once you've completed the stressful process of job hunting. This also gives you a cushion to take small risks like switching specialties or moving to a new city. Keep this in an easily accessible "high yield" savings account. There is a 98% chance you will be glad to have this money some time in your life. This is the money that gives you security.

3) 3-12 months of living expenses. This lets you weather larger life events (a parent is diagnosed with cancer and you want to stop working and move back to be with them for the last several months of their life). Or take bigger risks like moving abroad or going back to school or even switching careers or starting your own business. Or deal with a severe recession as some other posters mentioned (the market for programmers seriously bottomed out when the first dot com bubble burst!) This money can and probably should be invested as long as it's not in a retirement account with penalties for early withdrawal. There's an 80% chance you'll want to access at least some of this money some time in your life. These are the savings that give you freedom.

And yes, I have personal experience of using my savings - I've started a freelance business that took longer than I'd hoped to reach profitability. I've founded a startup. I've taken anywhere from three weeks to two and a half months between jobs, largely voluntarily. Always glad to have these funds.

[hackney]

Actually, it is 3 months. Food, rent, utils., ins., gas, pocket money. Adds up quick. Anybody that has 6 months of all that lying around doesn't need an emergency fund. Basically it's 25% of your annual net worth.

[willcate]

I agree with previous commentor -- I'd recommend 6 months minimum worth of living expenses, in cash, in the bank.