Financial advisers don't agree on everything, but most are in harmony on the issue of emergency funds.

Typically, they recommend that you keep enough money in an easily — but not too easily — accessible fund to cover three to six months' worth of living expenses.

And when I pass along their advice, I usually leave it at that.

But a reader named Alison sent an e-mail seeking specifics.

"I have been struggling with this everywhere I've seen it, ever since we got out of (credit-card) debt 15 months ago and started to save up for this fund," she wrote. "Defining what should be included in this number is very elusive!"

Alison wrote that she and her husband both have full-time jobs, and they have four children. She is wondering if their emergency fund should cover their take-home pay each month or their expenses.

She estimates that it would cost about $4,000 per month to cover their mortgage, life and car insurance, car payment, student loan payment, fresh food, gasoline, clothing, cable TV and Internet service and cell phones.

"So, is that IT? 'Cause getting to $12,000 in savings sounds a lot better than three months of our take-home pay, or for that matter, three months of our 'normal' expenses (food, gas, transportation, gifts, entertainment, clothing that we would not spend if times were tight)," Alison wrote.

"And since we've got almost that $12,000 saved — is that completely untouchable? For example, our carpets are 12 years old, and for 10 years the prior occupant's dogs used it as their litter box. Getting new carpet will cost about half the savings. How do you prioritize?"

Excellent questions, Alison. I turned for answers to Mike Peterson, spokesman for American Credit Foundation in Midvale.

"What an emergency fund's purpose is is to cover your expenses while you're in that emergency situation," Mike says. "Let's say one or both of them lose their jobs. Your emergency fund needs to pick up where those left off and cover your expenses for a period of time."

However, Mike also recommends that people consider their monthly expenses at their maximum value when building such a fund.

"When you lose an income or when you have an emergency of that nature, if you've calculated for the worst possible scenario — meaning you've got to cover all of your expenses for that period of time — that leaves you in a much less stressful situation," he says.

"If you can cover the mortgage and the car and the entertainment and the food and everything else, that doesn't mean that, in the event you end up in an emergency, you should go out and spend all of that, ... but it gives you the freedom to make some decisions that way."

While it is true that people usually cut back on spending during times of crisis, having more saved will give you more time to seek a new job, for example, or to otherwise extract yourself from the challenging situation.

In other words, Mike says, don't be chintzy with your emergency fund, but don't overdo it and put money in the fund that could be used for a 401(k) or other long-term savings.

"I have survived on an emergency fund for 12 months in my life, so I have a really acute sense of the value and the worth of those emergency funds," he says. "I had planned on a six-month window, ... but I had planned for everything I could as far as expenses go and was able to stretch that out into a 12-month period.

"Was it stressful? Absolutely. Did having that fund make a huge difference in my life? Absolutely. ... From a personal level, that's why I recommend saving more than less in an emergency fund."

Regarding your carpet question, Alison, Mike suggests you consider whether your need for new carpet constitutes an emergency.

"What an emergency fund does ... is to help in an emergency situation, such as loss of income, a car wreck, a car breaking down," Mike says. "Those are things that are emergencies. ... I don't believe new carpet fits into that situation."

He would suggest building up your emergency fund first. Once it is in place, you can start saving for the new carpet.

"Those emergency fund monies are sacred monies," Mike says. "You need to view them as sacred monies from the standpoint that that's your food storage in monetary terms. You don't want to spend that monetary food storage on things that are not really necessary. You want to use that for the tough times that may come ahead."

That may not be the answer you were looking for, Alison, but it makes sense to me. Drop me a line to let me know how things work out.

If you have a financial question, send it to gkratz@desnews.com or to the Deseret News, P.O. Box 1257, Salt Lake City, UT 84110.


E-mail: gkratz@desnews.com