Just recently, Brittany decided to quit her “9 to 5” bank job all because she was confident she had an emergency fund to have her back. It was a tough decision for her, but because she had reserves to dip into, it made the decision so much easier. She gave her boss the resign letter and said deuces. In a true emergency circumstance, like a layoff or a medical emergency; an emergency fund is deemed appropriate for those situations. An emergency fund is designed to cover 3 to 6 months worth of expenses and when we say expenses, we mean expenses to help you live like keeping the lights on and food in your stomach, instead of your car wash or beauty bag memberships (we’re just sayin’).
How much is enough?
When we say 3 to 6 months of expenses, we mean just that. That doesn’t include income. This is where your budget comes in, to help you determine how to calculate your emergency fund. (Brittany is a Licensed Financial Coach so she is all about budgeting and tracking your expenses; she can also create a plan to help grow your savings). You have to be able to look at all the necessary spending like food, gas, mortgage, rent, electricity, etc versus discretionary spending like cable, gym memberships, Netflix; basically things you can really do without. Add up all your necessary spending and how much it costs per month, then multiply that by the number of months you want to cover, and you calculated your targeted amount of funds you should have in an event of an emergency.
By all means if you want to add in more money and overfund your emergency fund, go for it. Keep in mind, if you’re putting in too much money at very low interest rates in a savings account, that can mean losing money over time due to inflation. Ashley and I can create a retirement plan for you to build your wealth to where you’ll have the peace of mind knowing you’ll be financially set in the future.
Where should you keep your emergency fund?
Of course keep your funds liquid and accessible. Liquid and accessible means keep it in a savings account where you can access the same day. You want to be able to get a hold of your funds immediately if need be. In an event that you lost your job, you’re going to want to pay your mortgage with the money in your emergency fund and not with a credit card. That’s where you get in trouble. That is the whole point of an emergency fund, to keep you out of debt. When you don’t properly plan for the unexpected, it causes more stress, more panic and more financial troubles.
How to start an emergency fund.
Go ahead and start today, you have nothing to lose. If you feel unmotivated to start saving, think of the reasonings why you should start an emergency fund.
- Health & dental expenses
- Job loss
- Home repairs and expenses
The lists goes on and on. Start with a goal of $1,000 in an emergency fund then keep building it. Set up an automatic transfer of whatever amount you feel comfortable with from your checking account to your savings account. Always remember, it’s not how you start, but how you finish.
Written by Brittany