Personal Finance

Personal/household Rainy day fund - how many month(s) of household expenditure do you put aside for it?

  • Last Updated:
  • Oct 5th, 2019 6:31 pm

Poll: Personal/household Rainy day fund - how many month(s) do you put aside for it?

  • Total votes: 46. You have voted on this poll.
0
 
7
15%
0-1 month
 
1
2%
1-2 months
 
2
4%
2-3 months
 
5
11%
3-4 months
 
4
9%
4-5 months
 
3
7%
5-6 months
 
6
13%
6-9 months
 
4
9%
9-12 months
 
1
2%
1+ year(s)
 
13
28%
[OP]
Deal Addict
Nov 9, 2011
1036 posts
1125 upvotes
Toronto

Personal/household Rainy day fund - how many month(s) of household expenditure do you put aside for it?

To avoid this thread turning into yet another bragging thread, let's keep the dollar amount out of it. And this thread is also not applicable to those RFD elites who have 1million+ net worth. This thread is for those working & middle-classes households who still need to budget their monthly expenditure. As per the thread title, how much do you put aside for rainy day fund (liquid cash) in terms of the number of month(s)?

So suppose your monthly expenditure is $3,000/month (including rent/mortgage, groceries & bills). If you put aside $6,000 in your rainy-day fund - you got 2 months covered.

I know there are lots of variables when deciding on how much you should put aside for the rainy-day fund such as job security, current & expected financial situation, life-changing events such as new car/house/kid etc. For me personally, I am trying to figure out how much I should put aside for a rainy day before putting the rest into long term investment and/or mortgage lump sum - basically defining a good balance.

Rainy day fund definition: a reserved amount of money to be used in times when regular income is disrupted or decreased in order for daily household operations to continue.
17 replies
Sr. Member
Oct 27, 2014
554 posts
1065 upvotes
Toronto, ON
My cash would cover 2 months of expense. My LOC can cover a year of expense. If the rainy day lasts longer than a year, I would have to liquidate my investments.
[OP]
Deal Addict
Nov 9, 2011
1036 posts
1125 upvotes
Toronto
muppetslayer wrote: My cash would cover 2 months of expense. My LOC can cover a year of expense. If the rainy day lasts longer than a year, I would have to liquidate my investments.
That sounds like a good strategy. I should look into getting a HELOC. Does it matter if your mortgage is not with one of the big 5 banks? I am with Think Financial.
Sr. Member
Feb 28, 2014
562 posts
670 upvotes
We have enough to go on for roughly 6 months to cover all expenses in the event both of us lose our jobs. However, the way we view emergency funds isn't just because we lose our jobs but include provisions for other emergencies like doing house repairs should crap randomly break or there's an emergency in the family or what not. For this reason, we don't just keep an emergency fund for only 1 or 2 months as people assume that emergency funds are only for job loss. If there's job loss, we can stretch it further than 6 months as we would start rolling back the non-essentials. We also have a LoC but by the time we use it, we'd be pretty screwed by that point.
Deal Addict
Nov 11, 2004
3191 posts
340 upvotes
Ottawa
I find with the use of a credit card, you can just charge any emergency expense, you then have that 1 month grace period
Hello
[OP]
Deal Addict
Nov 9, 2011
1036 posts
1125 upvotes
Toronto
ilusa wrote: I find with the use of a credit card, you can just charge any emergency expense, you then have that 1 month grace period
That is risky unless you have a LOC with a decent rate.
Deal Guru
Dec 11, 2008
10095 posts
1522 upvotes
Considering our monthly expenses are 50% of our net income, any emergency can be charged on our credits cards and usually paid off quickly. Otherwise we can cash from TFSA.
Deal Guru
Feb 9, 2006
12252 posts
6803 upvotes
Brampton
Fully invested
0.

If I need to I'll draw the LOC to weather a drop in the market. Use Divs to pay the interest.
[OP]
Deal Addict
Nov 9, 2011
1036 posts
1125 upvotes
Toronto
It's interesting to see lots of RFDers having over a year of rainy day fund. Why would you keep that much liquid cash outside of investment? Where do you put these funds? Saving account? Short term investment?
Deal Addict
User avatar
Mar 10, 2018
3721 posts
793 upvotes
centre of universe
I would say six months. Isn't that the rule?
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Deal Fanatic
Apr 5, 2016
5281 posts
3762 upvotes
Calgary/Vancouver
I have everything fully invested and HELOC on the side for emergencies. Worse case, I can always pull funds from less risky investments like my dividend stocks.
Deal Addict
Jan 2, 2015
1602 posts
603 upvotes
Toronto, ON
About six months (now that my job has become stable). It was twelve months beforehand.

The various advice websites say 3-12 months, so usually I break it down like this:

*Single, unstable: 12 months
*Single, stable: 6 months
*Married, unstable: 6 months
*Married, stable: 3 months

Of course, there is no "right" answer. Six months could be too short or too long (money that could have been invested), but it seems reasonably safe.
Penalty Box
Jun 24, 2015
4820 posts
1441 upvotes
0 downvotes
you should have enough for 1 year of expenses put aside, so a good 30 grand should cover that.
Hi
Deal Addict
Dec 27, 2007
3512 posts
1061 upvotes
Edmonton
0-1 month.

Why? If I need money I go work? It's quite simple to understand
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Deal Addict
User avatar
Jan 2, 2012
4020 posts
1916 upvotes
Toronto
If by "liquid" you mean cash in a chequing/savings account accessible within 1 day, then 0-1 months. Basically just the in and out monthly banking from chequing account.

Anything in excess of this gets invested, which can also be used as a rainy day fund. My ETFs in TFSA account can be sold, settled and deposited to my chequing account within 1 week. If some emergency desperately needs funds earlier than that can use HELOC while waiting for funds to transfer.

My opinion is that leaving months worth of cash in a bank account essentially losing you money every year, for something that will most likely never happen, is a waste and not good financial strategy. There are better options to prepare for emergencies.
Deal Addict
Jan 2, 2015
2051 posts
1461 upvotes
NOT centre of Univer…
tonershop wrote: It's interesting to see lots of RFDers having over a year of rainy day fund. Why would you keep that much liquid cash outside of investment? Where do you put these funds? Saving account? Short term investment?
We had a very high liquid amount for a few reasons. My spouse is a consultant, so it's feast or famine. We are in the constant habit of saving a large amount because there could be months without a contract. We also have high expenses with two kids. We tend to keep larger amounts in cash, and if a good investment opportunity comes in, we will dip down to less than 12 months, some times only 3-6 months. Our funds are a combination of rainy day/income levelling/and opportunity account.

It's usually in cash, only because I am a little lazy and am better on the automatic savings part.
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