For those of you who don’t have an emergency fund, this is the article for you. It’s basically a fund that you keep separate from your finances in case you lose your job or need fast cash right away. For best practices you should keep your 911 fund separate from your savings and checking account. You don’t want to be tempted to dip into your stash.
If you don’t have a 911 fund set up: You will most likely be forced to dip into your checking, or savings, or forced to put it on a credit card or even borrow from someone.
When you have 6 months of savings set aside for emergency expenses you are buying yourself time.
Here are the steps you should take to get an emergency fund started:
- List out all your necessary expenses that you cannot live without: Rent, Food, Utilities, Medical Costs, Internet, Cell Phone bill.
- Now add up all of these expenses (For example, $1200 for all expenses per month)
- Generally speaking you should have 6 months of expenses on hand. (For example, $1200 x 6 months = $7,200)
- The emergency fund amount you need today should be $7,200.
- If you don’t have $7,200 saved up then…
- …Determine how much can you save each month after you pay all of your necessary expenses. If you can save $300/month it will take you 24 months to have a sufficient emergency fund.
If you already have your emergency fund amount, then congrats. You just bought yourself 6 months of time in the case of really tough times. If you don’t have your minimum emergency fund amount, don’t stress. Start contributing as much as you can to your fund every month until you get to your 6 month figure.
Verdict: You should have 6 months of necessary expenses saved up. This should be separate from your checking and savings account. If you don’t have an emergency fund, cut excessive expenses and contribute as much as you can until you hit the reserve amount. It will buy you precious time and a nice padding when you need it.