If you had no debt, no one taking money from you every month, what would you consider as an appropriately sized emergency fund?
This is exactly the situation that my wife and I are in. We have just recently paid off our house, we have no car payments, no student loans and no credit card debt. If we were to run a lean month, I firmly believe we could be at the $2,000 level for spending. I completely understand that we could trim some fat but here is what our monthly expenditures look like:
Real Estate Taxes - $215
Homeowners Insurance - $75 - I should really shop around for this
Car Insurance (two cars) - $95 - And this.
Cell Phones - $100 - And this.
Gas & Electric - $120
Cable & Internet - $120 - We should definitely get rid of this! Or at least just have internet!
Water & Sewer - $30
Total for all *mandatory bills: $755 per month
That leaves $1245 per month to spend for all other expenses. These would include gas, maintenance, food, vacations, etc.
I think its realistic to assume $400 for food for two people each month - down to $845 to spend.
According to most rental websites, you should expect to spend between 1 - 3 Percent of home value on repairs. With upgrades to our home, I'm going to go with 3% or $625 per month - down to $225.
So, we have roughly $225 or $2,700 a year to spend on vacation, gas, presents, etc. in order to reach our $2,000 per month spending goal.
Let's be real, that's not going to happen...
We most likely will not be able to hit that level month in and month out, but it gives us something to shoot for. We could easily get rid of $60 a month for cable TV. We could shop around for cheaper insurance. We could reduce our monthly phone bill and if we were more cognizant of gas, electric, water & sewer, we could realistically reduce that as well.
But lets get back to the point of the article. With roughly $2,000 to $2,500 in spending per month, what would your emergency fund look like?
We are building up an emergency fund right now after paying off the house and completing some home renovations but at some point, we will have to flip the switch to investing again.
We are both maxing out 401K's so our net income is definitely lower and we are definitely dollar cost averaging into the stock market with each pay check. But I can't help but think we are going to get a market pullback eventually and that's when we should start buying again.
The thing is, the emergency fund might grow quite large at that point. Would you invest now or later? Would you have 1 month saved up, 2 months, 6 months, 1 year?
Let me know in the comments!