Having an emergency fund is one of the most important things you can do for your family’s financial well being. Unexpected emergencies happen all the time. Your car could break down, you could have an urgent home repair, or even a medical emergency. With three boys, a broken bone or two is just inevitable! This fund also helps hedge against unexpected unemployment. No matter how secure you think your job is, a lay off can come out of nowhere. We have gone through a couple layoffs over the last 10 years. Our emergency fund took so much stress out of very stressful situations.
How Much to Save
The general rule is 3-6 months of expenses. It will depend on your own risk tolerance. You want to be fairly aggressive with fully funding it. Take the total that you plan to save and divide it over a 2 year span. If you can do it in less time that is ideal.
For example, if you want to save a total of $9000, divide it over 24 months. That means you will have to save $375 per month to reach your goal. Things will inevitably come up and set you back, but keep pushing forward until you reach your goal.
How to Jump Start Your Emergency Fund
It may seem overwhelming at first. Saving 3-6 months of expenses is a lot of money, but there are plenty of ways you can jump start your emergency fund.
One way is to cut expenses as much as you caAn. Cutting back on eating out and entertainment are the easiest places to cut back in most household budgets. Don’t forget about the little things like the daily trip to the coffee shop.
Another way to help jump start your fund is to make more money. You can do this in a variety of ways. You can work extra hours or pick up a side job like delivering pizzas or driving for Uber. You can also collect all of your unwanted items around the house and have a yard sale or sell your stuff on Ebay.
You can get to your first $1000 in your emergency fund fairly quickly with just a little creativity.
Keep in mind that your emergency fund is for EMERGENCIES. This is not for things like Christmas Gifts or a new computer. That is what sinking funds are for (blog post on sinking funds to come). Once you set this money, you set it aside for only unexpected expenses.
An Emergency Fund is your family’s insurance policy against the unexpected in life. We may not know what is coming around the corner, but we can do our best we can to plan for the unknown.
Decided on how much you are comfortable with saving, and get started on your Emergency fund today.