Thought I’d pipe in on E’s series on having a financial safety net.
Currently the hubby and I have what we call an emergency house fund. The amount that we decided on was the largest expense we could think of for the house, that is the replacement of the roof. This amount is placed in a money market fund.
We also have a car fund for the replacement of our rather old car. Again, invested in a low risk (but low reward) money market fund. I’m not expecting any great return on my emergency fund.
But before we were as financially stable as we are now (and had the mortgage paid off), we had a home equity line of credit (HELOC) available for a year’s take home salary for one of us (we’ve always lived off one salary, investing the other).
This HELOC was applied for BEFORE any emergencies. It is more difficult (if not impossible) to obtain a HELOC when out of work so never wait until then to obtain one.
(Right now, the HELOC is used for investment purposes. Note: this was only done after having a track record of returns beating the interest rate charged on the HELOC. Plus for an extra level of safety, the interest charged can be covered by our other income.)
The emergency funds is the last source of money we dip into. I don’t even include it in our net worth calculations. In the decade, we have been married, we have been fortunate never to have done so.