Ever since I started Watson Inc, I get tons of financial questions. Check out the question and my response below
I may be too paranoid a view with my emergency fund, so please help me figure out how much I really need. I’ve been desperate to remodel my kitchen,…and I’d like to use some of my savings for it while still feeling secure.
Here are my stats – 30 year old single woman Monthly take home – $4100 ($500 is from garage apartment rental) Average monthly spending – $2500. (Could cut back to ~$2000 if things were tight) Liquid savings – $16,000
I had considered $12,000 (6 months of minimum spending) my required emergency fund amount, but I’m starting to rethink that. Let’s say I DID lose my job – My employer would give me 6 weeks of severance worth about $5000, and unemployment benefits would be $1200/mo. I can’t figure out how long you can draw unemployment because their site is so cryptic, but let’s say it’s 3 months for another $3600. Hopefully I’d still have the income from the apartment rental. Injury/illness is also covered – I have short term disability insurance that would give me 80% pay for up to six months. So, if I lost my job I’d still have at least $8600 “income”, which is over 4 months of expenses.
So, how stupid would it be to drop my emergency stash down to about $5,000 and spend the rest on my kitchen? Once the kitchen is all paid for I’d bulk up the EF again just for piece of mind.
I LOVE my house, but the kitchen is just awful and I love to cook. Help!
I understand your dilema; however, I cringe when I hear the term “job security” because the only true job security is your ability to get another job. It sounds like you are doing fine saving. With your stats, I would pull $4000 from my EF and save another $8000 over the next 4 months and do the remodeling without assuming much risk (i.e. by decimating my EF).
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.