Emergency Funds Give Peace of Mind

If you have been following my blog and facebook posts or have attended any of my workshops, you know that I am a huge fan of Emergency Funds. I cannot tell you how much peace of mind even a small Emergency Fund can give you.

Starter Emergency Fund

The rule of thumb for a starter emergency fund is $500 Starter Emergency Fund for Single Individuals and $1,000 Starter Emergency Fund for Couples and Families. A starter emergency fund should only used for real emergencies that cannot be fit in to your regular budget or for larger unexpected expenses that arise. For example, your water heater breaks and you need to replace it as soon as possible or your car breaks down and you need $800 to fix it in order to continue to get to work. A new purse on sale or a quick getaway to another island does NOT qualify as an emergency.

Fully Funded Emergency Fund

A fully funded Emergency Fund is for larger Emergencies, such as a loss of job or other source of income, loss of an immediate family member or other extreme hardship to the family. This fund should total 3 to 6 months of your expenses. For example, if your expenses total $3,000 (including rent/mortgage, debt, utilities, etc) then a fully funded Emergency Fund should be between $9,000-$18,000. This may seem like a lot, but don't rush to get your fully funded Emergency Fund if you can't afford to do so at this time. You should make sure you have paid off all your debts (with the exception of a mortgage) prior to saving for this fund. A good thing is, once you've paid off your debt (with the exception of a mortgage) your expenses shouldn't be as high so your fully funded emergency fund total may not be too scary.

Where to put your Emergency Fund

You should make sure your Emergency Fund is liquid and easily accessible. Meaning, don't put it in a bank that you have to wait 3 days to get the money out. Also, don't make it too accessible that you can dip into it for small expenses. My suggestion is to put it into a savings account that you have access to through an ATM machine or keep the cash in an at-home safe.