So I was wondering what the logic is behind the common advice - here and just about everywhere else on the internet - that "about 6 months income is a good size for an emergency fund".
I was surprised to not find an explanation when I searched for one.
I realize this is a very rough number. I'm sure 7 months vs 6 months isn't a source of fierce debate, and I'm sure someone with serious health issues or 15 children or with a tenuous career would get a big thumbs up to saving more than 6 months income.
But I guess I just wanted to understand why 6 months was the starting point.
Is 6 months an 'average' or a 'recommended minimum for typical circumstances'?
Is it just a case of "yeah, that seems like a reasonable lump sum I guess?" Or is <6 months statistically how long it takes people to find a new job? Or is there some special financial/tax meaning to '6 months wages' in the US? or did some famous financial person say 6 months one time and we just wrote it down?
Why I ask specifically:
I'm pretty young, and have been fairly fortunate. I don't have all that much experience with disastrous financial circumstances. But I also grew up somewhat poor, and am instinctively very conservative with my money.
My 'emergency fund' (aka my dumping ground for extra money) is closer to a year's wages than 6 months wages at this point (and I make good money for where I live as it is - so it just seems like a lot of money).
So I'm deciding if I should half it and put the extra into my mid-term savings (aka my optimistic mortgage fund bonds)
I also have a family I could easily live with very long term in tough circumstances, no debts, good credit, employable skills, a career I could continue paraplegic... Basically I would consider my self low risk if anything.
But I was just curious about the '6 month rule' and it's logic before I decided.
Submitted March 20, 2017 at 07:31AM by mynameipaul http://ift.tt/2n640Sw
