Chris and I made a goal of saving $5,000 in our emergency savings account by May 1st, which we met. As of today we are up to $6,750 and have a new goal of saving $7,000 by the end of 2011. (It seems to really help us to set financial goals like this; are you really that surprised that this works for me?)
On the one hand, I’m so proud of us for saving over $6,000 because we essentially started from $0 two years ago when we cleaned out our savings to buy our house. But on the other hand, $6,750 is really not very much of an emergency savings account. In the worst case scenario of Chris and me both losing our jobs, or in the event of an unexpected major house expense (like our air conditioner needing to be replaced), that money would go fast.
Using our budget we've calculated that our bare minimum living expenses are about $3,000 per month, which includes the mortgage, utility bills, groceries, student loan payments, insurance, and gas for our cars. So for six months of expenses we need $18,000. Suze Orman actually recommends saving eight months of living expenses so we'd need $24,000!
Currently, Chris and I contribute to our emergency savings account a bit differently. I typically put $80/month into the account ($40 from each paycheck) while Chris tends to contribute less frequently on a monthly basis but he will contribute bigger chunks throughout the year. For example, Chris is paid extra to teach summer school classes. We never include the summer school pay in our budget because it’s not guaranteed. So when Chris does teach summer school (and he has every summer) he’ll contribute some of that to our emergency savings. We also usually get a pretty big tax return each year and put the majority of it into our emergency savings account.
When I think about needing to save up so much money it seems like it will take soooo long and feels discouraging. But I try to remember that it's not something that is meant to happen in just one year. Growing this account is a long term goal, which means it will take time (years!) and the important thing is that we are making progress, even if just a few dollars at a time.