Why have an emergency fund?
Flat tires, brake replacements, dishwasher repairs, chipped teeth, broken toilets or seven summer weddings. These are unexpected events and while you may have known about the weddings, they don’t reoccur enough to fit into your budget. This is when you need an “Emergency Fund”, and EVERYONE should have one. The more financially confident you become the more you recognize this is a very critical key to success.
Having an emergency fund is not that simple. Half the time, it ends up turning into a new sofa or hot tub fund. It’s hard to see a balance of money just sitting there not being used. It’s far too tempting, you start to think you are invincible and can get away with ridiculous splurges because you know you have the funds available, if needed.
But let’s be clear here: Emergency funds are for the situations that will put you and your budget out of alignment. These funds are there to help you avoid stress and help you feel financially confident in case sh—t hits the fan.
Now for the million dollar question: HOW MUCH SHOULD I HAVE IN MY EMERGENCY FUND?
This is all going to depend on so many things. I can’t give you an exact number because it really depends on what you have going on in your life. Are you a renter or a home owner? Do you have a stable job? How many people or pets are you responsible for? What are your financial priorities?
As a golden rule, most financial planners recommend having three to six months of expenses saved up. For myself, that’s a lot of money to have just sitting around. The next piece of advice is to place this emergency fund in a high interest savings account and don’t look at it! Seriously. Place it into an account where you don’t see it, but you know it’s there. Only dip in when an emergency occurs and be sure to replenish it as soon as you can. You’ll be so proud of yourself for not having to get into debt for that stupid tire.
Replenishing your emergency fund as soon as possible always needs to be your biggest priority. THIS IS KEY. Remember to replenish.
If your bank account is not looking very full lately and you don’t feel you have ANY way of saving for an emergency, remember that even $20 put aside will help. Hide $20 dollars (or $200) somewhere and just keep building it up when you can. I understand that life happens, but to become the financially confident individual you want to be, you NEED to have a little bit put away for emergencies.
For some ways to save more money. Read the 7 WAYS TO SAVE MONEY blog post here!
Good luck!