Hi all,
We recently had to use our emergency fund for unexpected home repairs. Everything is resolved, and the fund did its job. This is why we save!
Now we are deciding how to prioritize refilling it.
We both save aggressively:
- Maxing HSAs and IRAs
- Contributing 15% to 401Ks, which is the most we can afford alongside other goals
Question:
- Should we temporarily reduce long term contributions, like IRA or 401K, to rebuild the emergency fund quickly?
- Or keep contributions steady and refill the emergency fund more gradually?
We also have additional savings in an HYSA, but that is earmarked for planned expenses like insurance and car maintenance, not true emergencies.
I'm thinking it would be better to temporarily prioritize refilling the emergency fund. Just because an emergency recently happened, doesn't mean another one couldn't be around the corner.
Just wanted to gut check my thoughts.
Emergency Fund Restoration Post Use
byu/Thismightnotbefunny inpersonalfinance
Posted by Thismightnotbefunny
11 Comments
Lower 401k to no less than maxing out your matches and no more than 15% total, including 401k contributions, 401k match, and IRA.
there is no right or wrong here…….. do you want the securty blanket back in 6 months or 18 months?? will you sacrifice long term returns, or monthly fun budget??
How much do you need to refill and how long would it take without adjusting other saving?
If it would be just a few months you can be patient. If it will never happen, you should pause other savings. You’re probably in the middle and have to decide. It’s much like choosing how much you’re going to spend on how much insurance.
Depends on your risk tolerance.
But generally, EF is higher on the order of priorities. Review the Prime Directive for a framework of prioritization.
—
Sounds like you are asking about a framework for what to do with money.
Start with reviewing the Prime Directive in the PF Wiki. It will answer your question and many other questions you didn’t realize you should be asking.
* https://www.reddit.com/r/personalfinance/wiki/commontopics
Seem like you have other earmarked cash. Why not use that to refill emergency fund then refill the earmarked cash over time
How did you fill it in the first place?
I personally split my budget into the following categories:
* Necessities
* House repair
* Saving
* “Float”
House repair is a bucket independent of an EF. Scaled contributions to put 1.5% of home value in that bucket annually. Non-negotiable.
Necessities go out every month, non-negotiable.
Savings are non-negotiable.
“Float” is what’s left. This is the eat-out budget, the save-for-vacation budget, the entertainment budget, but also the refill-emergency-fund bucket.
> Should we temporarily reduce long term contributions, like IRA or 401K, to rebuild the emergency fund quickly?
I would take this approach, and try to get back to an adequate emergency fund within six months.
This is a judgement call and it depends in part on how much you have left in your e-fund (and/or what other sources of money you could tap in another emergency). But reducing your 401k contributions is essentially the same as using retirement savings to pay for the repair in the first place. Unless you can get back to 15% by over-contributing to the 401k later in the year, I would try to find another source.
When there’s an emergency, everything is an emergency fund. Do you have enough savings earmarked for insurance and car maintenance to cover as an emergency fund? If so, that’s your emergency fund and what you need to restore is your savings for insurance and car maintenance.
I would cut back on IRA till my emergency fund is back to where it should be. It would be much worse to have an emergency and have to withdraw from your investments than delaying their funding, especially if you have to sell at a loss.
401K ans HSA goes through payroll so it’s more logistically annoying to change. If you have funds later, you can still fund IRA by April next year.
if you’re able, I would refill it as quickly as you can. Emergencies do not let you know when they will happen, could be tomorrow. (hopefully not). I would not however, reduce my 401K contribution to do so if you have discretionary income to allocate already.