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from the there's-always-the-day-*after*-tomorrow dept.
Economists say this is the Minimum Amount of Money you Need in an Emergency Fund:
Money experts generally encourage you to set aside three to six months' worth of living expenses in an emergency fund. Some even want you to stash away a year's worth.
After all, life doesn't usually go as planned: There could be another recession, you could lose your job, have a medical emergency or have to deal with a car breaking down. That's why, when it comes to emergency savings, "more is always better," personal finance author David Bach says.
But economists Emily Gallagher and Jorge Sabat challenge the oft-cited savings rules in their 2019 report, "Rules of Thumb in Household Savings Decisions." "People are usually given really high savings thresholds, like you should be saving six months' worth of income or you should have $15,000 squirreled away," Gallagher tells CNBC Make It. But those numbers aren't "based on much," she adds.
After crunching the numbers, Gallagher and Sabat found a more realistic amount for low-income households, specifically, to aim for: $2,467. If you have that much saved, your probability of falling into financial hardship (not being able to pay rent, bills or medical care) is low.
To get to that number, Gallagher and Sabat, who are also assistant professors of finance, used data from the Survey of Income and Program Participation (SIPP) to graph the relationship between falling into hardship in the next six months and how much you have saved as a buffer. They looked at financial information on more than 70,000 lower-income households, which the report defines as those earning under 200% of the poverty line. To put that into context, that's up to about $30,000 a year for a family of four, says Gallagher. This group represents "about 30% of the U.S. working-age population," she adds.
They found that if you have very little saved — say $200 to $500 — each additional dollar you set aside dramatically reduces your likelihood of falling into financial hardship. But once you have at least $2,467, "all of a sudden, saving an additional dollar didn't seem to be that helpful anymore," says Gallagher. "It still reduced your probability of falling into hardship a little bit, but it wasn't nearly as effective as when you were at low levels of savings."
(Score: 0) by Anonymous Coward on Tuesday October 22 2019, @11:03AM (3 children)
The article is on CNBC and aimed at Americans.
$10k a year can take one person far.
$30k a year might be enough for a family if they can rent enough living space for cheap.
Medical issues could fuck everything up. If you live in America don't get sick.
$2500 is an improvement on unrealistic recommendations, and achievable.
(Score: 2, Insightful) by Anonymous Coward on Tuesday October 22 2019, @01:05PM (1 child)
Even in the US it depends a lot on where you live. big city expensive neighbourhood vs big city cheap neighbourhood vs small city etc.
(Score: 2, Informative) by Anonymous Coward on Tuesday October 22 2019, @01:27PM
$10k in the US will take one person far because that person will be an itinerant goddamned hobo.
(Score: 3, Interesting) by Thexalon on Tuesday October 22 2019, @04:13PM
$10K a year means a single adult is living below the US federal poverty line. Which is an indication that even in poor areas, that person cannot keep a roof over their head and food on their plate.
I've lived cheaply at times in my life: My not-great small apartment in a not-great part of town cost me about $6700 a year. FICA tax ate up another $750. Gas and electric was another $600. If I wanted to get anywhere I couldn't walk to (e.g. my job), that's another $840 a year in local bus fares. On your $10K budget, that leaves you $90 per month to pay for everything else: Food, clothing, health care, toilet paper, toothpaste, soap, etc. And if anything goes wrong, you're completely screwed: If you get hurt or sick, if you get robbed, if your boss shaves off 1 hour per week from your work schedule, if your bus to work is delayed too long, if your aging parent gets hurt and you're the only one who can take care of them, etc. In the event that absolutely everything goes right, and you limit yourself to eating absolute garbage (which increases the odds of you getting sick or hurt of course) and get all your entertainment from the public library because you're not buying a TV with this, you can save maybe $100 a year. Which means it would take 25 years, again with absolutely nothing going wrong ever, to get to the kinds of savings they're talking about.
Add in a kid (and bear in mind that any birth control you're using comes out of that $90 per month) or a non-working adult and it's now completely impossible to manage.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.