Depending on where you are at life, an emergency may have a different definition. As a student it may be student loans not coming through or parents not paying the amount they said they would. To some students a job lose is not an emergency because student loans and/or parents are paying for their expenses. However, some students are working and going to school and may rely on their wage, I know I did. But when I was working outside the school loosing my job did not affect my schooling and vise versa. For my fiance who had a scholarship in undergraduate and a fellowship now school and income are intertwined. That makes emergencies a different beast. It does mean he has a more secure job but if something goes wrong it will be worse for him than it was for me. Both now and then I had an emergency fund but honestly it does not feel like enough. Do you really want to worry about the money slipping through yours fingers when you are trying to find another job? What happens when multiple emergencies happen? It just eats away at the emergency fund and your three months of savings is now a month. I do not think house repair, car repair or any replacement funds should be included in your EF. They should have their own fund. My EF is for loss of income, nothing else. This way if you need to replace a car battery when unemployed your EF will not be drained down.
Even as a student, people should have multiple streams of income. Maybe it will be scholarship and work or maybe you would consider student loans in that mix but never rely on one stream. I think this is going to be the biggest change about our generation compared to the previous generation. We know our jobs are not stable so we will have more than one income source. By having more than one income source, if one disappears it is not as life changing.
However, as you start out you will have one main source of income and you will need something to rely on when that source fails. Note, I did not say if, I said when. There is no stable income, state and federal employees were taking furloughs and private sector employees get laid off all the time. So what can you do?
Personally, I am working on getting my alternative sources of income up. When we purchased our home, we bought a duplex. We looked at duplexes where the rent would cover our mortgage, property taxes and insurance. Now that we have a renter, even if my fiance looses his job our home is secure. But what about everything else, food, clothes and most importantly health insurance? Do you know how much you (or your parents) are paying for health insurance? Does that amount cover the full cost or just a part?
When I aged out of my mother's insurance I could not find any health insurance that would cover me, even with a huge deductible. I had to COBRA my mother's health insurance at over $500 per month. On the other hand, my fiance was able to get a high deductible plan for under $150 per month. Now to COBRA our current coverage it would be almost $600 for both of us. This cost must be added into your emergency plan because you cannot guarantee that you can find health insurance other than COBRAing your current health insurance.
So at this point if I lost all income I would need $2147 per month, if I cut away the fat from my budget. For a minimum emergency fund I would need $6441 (3 months). Because my tenants could leave at the same time that my fiance loses his job I keep my EF at least this high. However, that extra $525 a month could help stretch my EF to almost 4 months. I personally would not be comfortable with such a small EF without the extra income and his very secure job. He has a contract with his PI (primary investigator) as well as the department and the college.
Also, I work as a server, it took me less than two months to find a job, maybe not exactly what I wanted but one advantage to a low skill job is it is easy to find another. We do not count my income in our budget, last year it went towards the wedding and this year I am taking classes so may not have the time to work. In addition we have two extra rooms we could rent out, though we do not want to. The best time to rent room is August (for students) or April/May for summer school. We do not depend on that in our EF planning though it is an option.
What else can we do as part of our EF plan? I am looking into mystery shopping for when I am not taking classes. We are saving like crazy for our next move in three years. We have a car fund, a house fund and a replacement fund. Those funds should deal with any minor "emergencies" so we can work on a plan for the major ones. We are going to buy another duplex but that will probably be some time from now. I have started being an occasional research subject at the university for a little extra money for our EF. We also plant a garden to stretch our food budget, this will help if we cannot afford groceries. At some point I hope to also get some income from the blog but that has not happened yet. Anyone else have ideas for other sources of income?
For students time is the greatest hurdle in making multiple streams of income. Students need flexible jobs that allow time for studying and classes. I found that combining serving with an on-campus job was the best. Over the summer is the best time to juggle multiple streams on income and make the most income. You will notice an increase in my work on this blog during the summer as well. I do have one guest post coming out in June and will be trying to get another guest post for both July and August. Work will pay for my classes next semester, the other streams will add to my EF as well as my retirement fund.