Where's My Trust Fund?

The current job market is awful.  Last week the news came out that the unemployment rate in the United States is currently 9.8% and 6.3 million people have been jobless for six months or longer.  As I read the the papers and hear from friends who are having wage freezes, wage cuts, and job losses, I cannot help but ask myself- is the standard recommendation of 3-6 months expenses sufficient as an emergency fund?

As I mentioned in my original post on emergency funds, there are three main questions to ask yourself when thinking about the size of your emergency fund:

1) Are you a one or two income household? If you are a one income household you need to have a  larger emergency fund.

2) How stable is your job? There are a lot of people who probably assumed they had very stable jobs who have now been laid off.  As colleges and universities have been forced to adapt to the economy, even some tenured professors, a job that is often considered as extremely stable, have been laid off.

3) How long would it take you to find a job if your lost your current job? This question has a  lot of nuances.  Would you be able to find a job in the same industry?  How transferable is your skill set and would you easily be able to find a job in a different industry?  Would you have to move to find another job and how much would that cost?  Would you have to go back to school for additional training our another degree if you were forced to look for another job?

After going through these questions I have concluded that the answer is yes, you should have a larger emergency fund given the current labor market.  I am striving to have 12 months of expenses in our emergency fund.  While we are a two income household and there does not appear to be any immediate danger to either of our jobs, if we were to lose either of our jobs it would probably take us quite awhile to find another job, especially because we would not be willing to move to another state for a job opportunity.

To get to the 12 months of emergency fund I am taking money that was earmarked for other purposes, namely our down payment money, and putting some of this money towards our emergency fund.  It most likely means we will need to save for longer before we can move, or buy a smaller house when we do move, but that is ok.  In the meantime I have been working on tracking our expenses and finding ways to cut back on spending.

If you don’t currently have an emergency fund, it is more important than ever that you at least get started on one.  Please see my original post on emergency funds for more details.

As so many things in the world of personal finance, the size of your emergency fund is not a static number.  It is good to ask yourself these three questions on a regular basis and adjust your number as the answer to these questions change.