Do you have an Emergency Fund (or a Safety Net Savings Account) for that rainy day when your car breaks down or you come home and find that your heating and cooling system is out?
If you don’t, you should!
According to 20 Something Finance, insurance may cover many of these scenarios for you, but there is always a chance that it won’t cover fully what you will need.
These are a few examples they provide:
- lost job or layoff
- began a new job that required you to expense a geographic move
- auto accident, auto retirement, or major repair
- major home expense such as a broken water line, tree falling on your roof, fire, natural disaster effects, etc.
- pet health care
- unexpected taxes owed to IRS
- death in family that required you to help pay for funeral and other expenses
- unexpected medical expenses not fully covered by insurance
In my opinion, the number one reason people do not achieve their financial goals is debt.
If you do not have an Emergency Fund, you will have to go into debt to finance the next curve ball that life throws your way.
So how much money should you put aside in your Emergency Fund?
Financial guru Dave Ramsey encourages everyone to start by saving $1000. It’s "baby step number one" in his 7 baby steps on your journey to financial peace.
Most budget experts recommend that you keep 3 to 6 months worth of expenses in an Emergency Fund.
This means that if your monthly household expenses are $3,000 then you should keep a minimum of $9,000 in savings.
I believe this is good advice and I choose to follow it myself.
I recently had a rear tire blow out while driving on vacation. Nine hundred dollars later my car was repaired and we were back on our way.
While I was unhappy about the expense, it did not phase us financially because we had plenty of money in our Emergency Fund to cover the cost. We then replenished the $900 in the following 2 months by saving some excess income.
Here’s how to start an Emergency Fund on any budget.
I recommend that you set up a separate savings account specifically earmarked for your Emergency Fund. This will decrease the likelihood that you will make an impulse buy and spend this money, as if it were in your regular checking account.
It is very easy to link your checking and savings accounts so that if you want to move money online from one account to the other you can do so for convenience.
Most savings accounts are not paying a high amount of interest, but if you look hard enough you should be able to find a rate around 4% with a credit union or local bank.
I encourage you to start your Safety Net Savings Account today if you don’t have one already. It is the first step in establishing a good financial plan for your future — both short term and long term.
Check out these 21 strategies for creating an Emergency Fund.
I’m a Financial Consultant and Personal Financial Representative with experience in financial analysis, strategic planning, presenting, & financial advisory services.
