Do DINKs Need a 6 Month Emergency Fund?

Have cash on hand in case of an emergency too

Of all the boring, mundane things in the personal finance space, emergency funds take the cake. You work hard to earn some cash, and then the first piece of advice people tell you is “don’t spend it.

Where’s the fun in that?

What’s the point of having money if you can’t spend it – or even invest it? Just leave it in cash, losing money to inflation.

Your Emergency Fund Isn’t Supposed To Earn Money

The biggest thing people need to understand when it comes to emergency funds is that the money in an emergency fund isn’t supposed to earn money.

Emergency funds are for emergencies.

Think of it as your own personal insurance policy for when shit hits the fan.

We break those rules a little bit but still keep some money in cash. That money is losing money compared to the rate of inflation, but it’s serving its purpose.

If things go south, we’ll sleep well knowing we’re covered.

But for many, the thought of having 6 months of expenses tied up in cash, unable to be spent, doesn’t help them sleep better at night.

Is “Typical” Advice Even Good?

The most common advice I see when talking about the size of emergency funds is three to six months of expenses. If you spend $4000 a month, that’s anywhere between $12,000 and $24,000.

Suze Orman is a big proponent of an even larger emergency fund – 8 months, minimum. Suddenly we need to save another $20k just to meet the ‘minimum’ amount. Not exactly chump change.

There are a few reasons we use ‘months of expenses’ for an emergency fund size instead of pure dollar amounts.

For starters, if you spend a lot less than someone else, you don’t need as much cash on hand to sustain your lifestyle if you lose your income. It’s the same idea as focusing on a savings rate.

The less you need, the less you need.

It also forces you to actually understand your spending in order to arrive at a dollar amount.

I don’t think everyone needs to diligently budget.

But everyone should know how much money they’re earning and spending each month.

Three to six months is used as a baseline because that’s roughly how long you might expect to be out of work if you had to find new sources of income.

DINKs Aren’t Typical

But being in a dual income household, we have advantages over our children-bearing peers. We don’t have any little mouths to feed; just us, and we’re not very picky.

If times get very lean, we can eat dirt cheap.

It’s also a lot easier to explain to an adult that we can’t afford to do something we otherwise would have liked to.

Kitces published an article recently that dives into this and suggested that in fact, dual income households tend to be at greater risk to income loss.

Using this as a basis, we should probably err on the side of a larger emergency fund, right?

The MwM Household Isn’t Typical

That analysis is definitely interesting…but it doesn’t really apply to us. In the event of a job loss, we’re shielded – not hindered – by having two incomes.

The analysis would hold true if we weren’t living off one income, or if the comparison were done against a family who was.

But the flaw is comparing a two income household who needs two incomes with a one income household who needs just one income.

That’s an apples-to-oranges comparison, though, and we don’t fall into the former group. We’re DINKs who live primarily off of one income.

By living primarily off the money that I bring home, we’d be fine if Kristin lost her job. Our savings goals would take a hit, and we’d definitely have to cut back to FEEL comfortable, but we could get by indefinitely.

On the other hand, if I were to lose my job, we wouldn’t be in nearly as good of a position. We could make it work – just barely – but we’d be stretching ourselves a lot to do so.

What that means, though, is that our “3 month emergency fund” could actually sustain us much longer if we lose only one income.

If we didn’t adjust our lifestyle at all, and continued to pay extra on the house, we could probably stretch our emergency fund a few extra months.

But if things really went south for me, paring down would be an option. Doing so allows us to stretch our emergency fund to about a year, give or take a month or so.

This would mean no 401(k) contributions, no saving, no vacations. No fun. But doable.

It’s All About Risk Tolerance

With that in mind, it makes our ‘three month emergency fund’ feel closer to 6. We set the bar low because we’re comfortable with that risk.

I’d rather stomach the risk there and see our portfolio grow slowly with low-volatility investments. Besides, we’re continuing to add to it each month so eventually it’ll bulk up.

Ultimately, I’ll take the risk of having no fun for a few months if stuff really goes bad over the certainty that even more of my money is losing to inflation.

Risk tolerance is part of what makes personal finance so personal. It’s why we have varying sizes of emergency funds, including some that are, by most measures, too big.

It’s what leads folks to invest in different things, or not invest at all and instead pay off debt.

Risk tolerance is such an interesting concept for me to dive into because of how personal it is. I love trying to truly understand others and see their point of view, particularly when they have a higher risk tolerance than we do.

One of the luxuries of being DINKs is we’ve got more flexibility in what we choose to do. That helps our risk tolerance be probably a bit higher than others.

It also means that we need to analyze blanket advice like Suze Orman’s “8 to 12 months living expenses for an emergency fund” a bit more.

Our unique situations make continuing to talk about personal finance worthwhile. Those different viewpoints are valuable to keep exploring.

Question:

How do you assess how big your emergency fund should be?

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14 Comments

  1. A mentor of mine (also DINK) told me once, “Set up your finances so that you can live entirely off the smaller of your two incomes, and you should be fine”

    Sound advice. Our current budget wouldn’t work if I lost my income, but the extra is discretionary spend. Our core expenses are covered by Mrs. Wizard’s salary.

    It’s a worthwhile mathematical exercise to go through.

    1. Yeah it’s definitely interesting. We could live off Kristin’s income if we didn’t save anything and didn’t have the house. The house put us just barely out of reach of doing that. Still, being able to live off one income is definitely not the norm.

  2. My husband and I are DINKS who currently feel that 6 months expenses in an EF makes us feel most comfortable and, similar to you, we know that realistically we could stretch that an additional 1-2 months if troubled times ever came our way.

    Currently his income is very low (he went back to school last year & as a result quit his job and took an internship in his new career field) so I am now the “bread winner” at home. After reading about your financial set up with your wife – we’ve talked about soon taking on the challenge of “living” off my income and putting his salary completely into savings. It’ll be a challenge but I’m eager to see how it pans out!

    1. That’s a great goal, Amy! It’s definitely difficult to do in the beginning and will take some adjustment, but it’s awesome. The key then is as his income grows, try to stay living off your income as best you can.

      Obviously you’ll have some lifestyle inflation and just ‘quality of life’ improvements once he’s working full time again after school, but keeping those to a minimum is an awesome way to set up your future!

  3. Oooh, this is a good one. We’re also DINKs and much of this rings true. I think we tend to have a 3-month emergency fund because we’re paying off debt rapidly. It doesn’t make sense to tie up all of our cash in an emergency fund, especially when we’ve reduced our cost of living enough that the emergency fund can stretch for quite a while.

    1. Haha I am pretty sure most people think emergency funds are boring 🙂 Us finance folks are kind of odd ducks though…

      I’ll definitely read that! I like ERN’s perspective typically.

  4. I have thought about this multiple times, and got to the same conclusions as you. We are a dual income one kid family. Either of our jobs could keep us going – we wouldn’t need to touch the emergency fund.

  5. I’m in a different boat since I’m single and have one source of income. But I only keep 3mo emergency fund in cash (savings) and throw the rest into my Taxable brokerage. Once that gets up into the range of my annual income, I’ll probably stop keeping a separate emergency fund entirely.
    I went through two periods of unemployment last recession (over a year in total) so I know how low I can cut expenses. I also have a spare bedroom that I could use for Airbnb or take on a roommate to help cover the bills. Pretty sure I could stretch that 3mo EF into 6 or more. And nowadays there are aide hustles that could help keep me afloat!

    1. That’s legit too Jover – we do a similar thing with a hybrid approach to savings. Add on to the fact that if we really need to we can withdraw Roth contributions without penalty and that helps us sleep better, too.

      Ditching the EF altogether is an interesting concept. I think as long as you can deal with the taxes at the end of the year, though, it’s probably not too horrible. Cash can definitely weigh down your portfolio, but I still think having a little bit of a buffer would help us sleep better.

  6. We FI obsessed folks are definitely abnormal… talking emergency funds is FUN! Haha. We don’t have even close to 6 months in savings, because of the reasons you covered. We are DINKs right now, and are fortunate enough that we can cover necessary expenses off about a half portion of the smaller of one income, and have a nice comfort cushion above that which we could cut if times really got lean… a fantastic position we worked hard to put ourselves into.

    So now we are plowing tons of our “excess” cash into investments to make up for our ‘lost time’ in our 20s. We will slowly build up our cash cushion more, but esp now with the ‘correction’ and stocks on sale, we are more focused on investing, with the secure knowledge that if one of us lost our job we would be perfectly fine. Who knows if and when that may change, but that’s the current sitch and we are happy with it.

    1. Haha abnormal is a nice way to put it, yes.

      Being able to cover your barebones expenses on less than the smaller income is HUGE, that’s awesome and puts you guys in a pretty comfortable spot, which isn’t all bad! Good for you guys for putting more into investments. That’s definitely the smart thing to do. 🙂

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