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In trying to figure out how to balance my finances, I’ve often struggled with how much is the right amount for an emergency fund. Should I save more in cash, or invest it? Should I pay off my mortgage faster, or save more? How much is enough for an emergency? How much is too much? Should I buy more cheese or less? One of those questions is easy to answer; the rest, not so much…

Standard advice is that an emergency fund should include 3-6 months’ worth of living expenses. Some people advise this should all be in cash; others say it’s silly to have that much cash sitting around and not working for you.

Being more risk averse than your average bear, in the last few years, I settled into a pretty comfortable routine: after paying off all non-mortgage debt (see: Hair on Fire), I kept about two months’ worth of living expenses in cash and between two and six months’ expenses invested in my brokerage account, the range depending on no rational factors whatsoever. Everything else went into my retirement accounts (401(k) and Roth IRA) and to paying down my mortgage.

And then, several months ago, things changed a bit as I realized I am super unhappy in my job and need to find something new. Around the same time, I also hit a major mental milestone on my mortgage, and so decided to shift extra money from mortgage payments to savings in my brokerage account. The result is that I now have my basic mortgage payment covered by my rental income (woohoo! as long as my short-term rental plan keeps working, that is…) and OVER A YEAR of other expenses in my brokerage account. Holy moly!

And then, I thought this was too much. Why would I possibly need that much money? Would I be tempted to spend it on unnecessary new things? What else should I be saving for? Should I buy a rental property instead?

And THEN, after hemming and hawing for a few months and feeling overly, unnecessarily conservative, something happened. I had THE. WORST. DAY. EVER. Something happened at work that simultaneously made me want to resign immediately and also instilled in me a very real realization (for real!) that my job might not be there the next day.

And you know what? This was not scary at all. I was mad and upset and sad, but not scared, because even in the midst of the Worst of Times, I knew — viscerally knew — that It Would All Be OK. Not to sell myself short, part of this is undoubtedly due to my own sense of reality, grit, and hard-workiness, but a lot of it is also due to an unshakeable sense of financial security. If I need to actually pull out my metaphorical working-at-Trader Joe’s parachute, I can, but I don’t have to. And that piece of mind is priceless.

And now, I feel so grateful to all the people who’ve come before me to encourage my savings habits, debt-aversion, and hard-workiness, but also my confidence in myself and my ability to power through the tough times. The latter part may be the hardest, but not having to worry at all about the money part makes it feel that much easier.

I didn’t quit my job, yet, and things have come to feel a bit more stable, but it’s great to know that I always have the ability to protect myself in my back pocket when I need it. This is what frugal freedom is all about.


© 2015, Cheddar Pie. All rights reserved.


bottlingmoonlight · December 8, 2015 at 6:36 pm

Three cheers for peace of mind!! But double yucks on the need for it. 🙁 I’m sorry that work hasn’t been going as smoothly as you’d like. But how amazing to have that sort of personal security such that it doesn’t throw you in a complete tailspin. If you really come to dread it, you could just quit and move into your car and wander the country. I hear it’s a good time! 😉

    Cheddar Pie · December 9, 2015 at 11:10 am

    Thanks! This is definitely on my list of possibilities. 🙂

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