I have read a lot about an “emergency fund” in various finance blogs and they seem to agree that a rule of thumb is to have three to six month’s worth of money available (some even say 9 months to a year) in the bank. That means, three months of rent, utilities, food, fun, and miscellaneous money.
But what does that mean for an international teacher? What does that mean if I say that I am so worried about retirement and paying off my student loans?
A little background: my job as an international teacher in Venezuela currently pays for my rent, electricity, water, half of my internet, and my health insurance. I spend about $300 a month on food, transportation, and my half of utilities.
I could stop paying into my student loans since my plan currently says I am required to pay $0 per month and I could stop paying into my retirement if it were an emergency situation. I have no other debts to worry about.
Does that mean I should only have $900 or $1800 in the bank? That seems really low to me!
Some things I also plan for:
- Escape: What if the situation in Venezuela became too unsafe and I needed to leave tomorrow? This thought is really scary because I just read an email from the embassy that says there are 50% fewer flights from Venezuela to the US as compared to six months ago. I just looked at flights leaving tomorrow and there is a flight from CCS to MIA for $927USD. That would at least get me out of the country. But, if I wanted to get all the way home to PDX the cheapest flight leaving tomorrow would be $1584USD. Lets just say $1600 to be safe.
- Vacation: Many people wouldn’t consider a vacation fund to be a part of one’s emergency fund, however to live in a place like Venezuela, I like to get away from time to time (basically, every vacation that is 4 or more days). I actually have separate accounts that I save for specific big trips I have planned (currently two “savings goals” in SmartyPig for Machu PIchu and Europe). I like to set aside a smaller amount for the smaller unplanned vacations. The cheapest international flight I can find for my first break is $466 (CCS to BOG). Plus $100 per day (food+ hotel+entertainment). Why not round up to $1000? We are already at $4400 btw.
- Wedding: My inner optimist says that I will get married one day. Considering that every year I seem to care less about potential wedding trappings I have an online savings account labeled “Wedding” where I stashed $1000 and it currently accrues .75% interest. This fund combined with my vacation fund would allow me to elope, do paperwork, and have a little salsa dance party in someone’s backyard. Haha. I had this money in a CD before, but the short term CD rates I’ve seen are earning less than my savings account. So that is another $1000.
- Buffer: I also have a second account with a brick and mortar bank that gives me no perks other than easy access to my money when I’m home or traveling. I have my paychecks directly deposited here, and I take my monthly allowance for living expenses out of this account. I try to keep $1000 in here at all times so I don’t get charged any fees and to cover any automatic withdrawals from credit cards (which I usually only use when I’m traveling or at home over the summer).
So how much money should I have in the bank according to my little guidelines I’ve listed above? $6400.
After I have that amount saved I try to either make an extra payment on my student loans or an extra deposit into my retirement account.
Other people think about saving additional money for a down payment on a house or having children. While I would like to do both of these things, I don’t see them in the cards for myself anytime soon, so I don’t save for those goals at this point.
I know travel shouldn’t really be such a high priority for someone who hasn’t paid off all of their student loans and who has less saved for retirement than the amount recommended (due to college/grad school/low paying jobs), but since people tend to develop heart problems and Alzheimer’s in my family, I’m enjoying life to its fullest!
Like I always say, I’m not a certified financial planner so pay no attention to my personal not-so-secret savings plans! haha
Please comment: How much cash do you like to keep easily available? How did you figure out that number? Do you use a brick and mortar bank, online banking, or a combination of both for your emergency fund?