What are your emergency fund rules?

Many people said something along the lines of: NOT TO BE TOUCHED unless in a REAL emergency, which is the rule I subscribe to.

Others said: Only to be touched when rent has to get paid for example, but that to me is more “Savings” than “Emergency Fund”.

But what I am interested in are the rules.

Do you have a set $$ amount, like $10,000?

Or do you have an idea of 6 months worth of expenses ($1500 x 6 months = $9000)?

Here are some ideas I’ve had lately about EF rules:

EF Option #1: 2 years worth of savings

As a freelancer, my emergency fund threshold has to be a lot higher than 3-6 months.

I need about 2 years worth of living expenses saved to feel safe, especially since there MAY be times where I won’t be able to work for an entire year.

24 months x $1500/month* = $36,000 at least

*This is an estimate. I spend about $700/month in bare expenses, so $1000 should cover it and still give me room to breathe for dentist appointments and other one-off expenses, but I like being overly conservative.

I find this to be a good minimum, considering that I COULD live on $700/month, which means I am saving about 4 years of bare expenses, assuming I don’t see the dentist or doctor (er…!)

EF Option #2: Straight cash figure

I am thinking of $50,000 for some reason, but maybe it’s just because I like round numbers.

I find this to be a waste of interest, meaning it’s just sitting there in my (high) interest savings account, earning no more than 1% – 2% a year.

I am not thrilled about having that much cash sit idle.

Then I have to figure out WHERE I want to save it:

A) Keep it all in cash and throw it into a “high” interest savings account paying 1.2% – 2% a year?

B) Throw a percentage of it (half maybe?) into 5-year GICs paying 3% a year?

I also have to think about maxing out my retirement funds ($5000 in the TFSA for this year and $11,000 (?) into my RRSPs).

So, thoughts? What are your rules?

Update: Thank you to Caleb for catching my horrible typo in the title of all places!!! What ARE your emergency fund rules is correct, not “What’s”, because What Is = refers to “Rule” (singular), and I am asking for “Rules” (plural).

Forgive the idiocy. It was an ad hoc post done after an 11 hour workday.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.