Friday, May 24, 2019

Expect the Unexpected - Emergency Fund

What is an Emergency Fund?

An emergency fund is the money you save for those unforeseen expenses - a.k.a. life happens.  Your budget is made up of monthly expenses like Giving, Saving, Housing, Transportation, Food, Personal, Lifestyle, Health and Insurance.  Your emergency fund is for the events that you did not anticipate in your budget.  When expenses hit outside your budget (i.e. Car Repair, Home Repair), you have the money that can easily be accessed to pay for the unexpected.

The emergency fund needs to be available and not invested (a money market is a good spot for an emergency fund).  You don't want to utilize debt and credit cards to get through unexpected car repairs or job changes.

  How much should be in an Emergency Fund?

A goal for an emergency fund is to have three to six months of living expenses to weather life’s unexpected events.   For a one income family, it is suggested six months of savings for an emergency fund.  For a two income family three months is recommended as it's unlikely both income earners will hit a bump in the road at exactly the same moment.  Above these amounts some set an everyday emergency amount to smooth out car and home repairs.  Do not get hung up trying to zero in on an exact dollar amount.  The key is to establish emergency funding for unpredictable moments and get you through without borrowing money.  Without an emergency fund you may slip into debt and erode your cash position. 

When do I start an Emergency Fund?

Start an emergency fund now.  It will take financial planning to establish an emergency fund and will change the road traveled.

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