The Wall Street Journal recently and noted the following:
The oft-quoted rule of thumb is to save three to six months of living expenses in your emergency fund. But many people these days will need nine months to a year of expenses covered just to get by. Consider that the average duration of unemployment is nearly 40 weeks. That means even if you have six months of expenses saved, there's a good chance you'll use it up before landing a new job.
They also quote these startling facts:
According to a 2011 study by Bankrate.com, 46% of Americans haven't saved enough to cover three months of expenses. And only 24% have saved enough to cover six months or more.
And just to show how bad things really are, the post features a chart where people are asked if their credit card debt is greater than the size of their emergency fund. The results:
- 54% said no, their credit card debt wasn't greater than their emergency fund savings
- 25% said yes, their credit card debt was greater than their emergency fund savings
- 16% said they didn't have credit card debt or emergency fund savings
- 5% didn't know or didn't answer
Several comments from me:
- I don't hold to a set level of emergency funds for everyone, but six months is a good general guideline for someone looking for basic guidance. If you want to get more specific, the post Six Levels of Emergency Funds. gives some additional details.
- Personally we have about six months of salary saved up which equates to 12 months or so (probably more) of living expenses. It may be a little overkill for us, so I might trim it back a bit.
- Looks like only 24% of the people have met the six-month guideline. Said in reverse, 76% of the people don't have enough stocked away in their emergency funds (especially those 46% who have less than three months of expenses saved).
- Then there's the 25% of people who have more credit card debt than emergency fund savings. These people are living on top of financial time bombs. At least the 16% who have neither are in better shape than this group because they aren't paying outrageous interest charges on their credit card balances.
- I wonder how much of these poor results come from the bad economy. Or would we have seen similar numbers prior to 2008? It's hard to tell, but my guess is that it's a combination of both -- there's a group of people that won't have emergency funds no matter what and there's another group that has had to deplete (or at least lessen) their emergency funds because this economy has caused them to face an emergency (like a job loss.)
How about you? What's your current emergency fund status?