An emergency fund is exactly that, for emergencies! While many experts recommend $1000 as a starter emergency fund, in our current era, $1000 won’t get you very far. I would recommend saving at least $2000-$3000 as your starter emergency fund before paying off other debts aggressively and saving for other priorities. Nowadays, if your car needs new brakes or a medical/dental emergency arises, you’ll need at least a few thousand dollars. If your family is anything like mine, our major expenses come in waves, 3 at a time it seems!
Having a starter EF is important even before you pay off all your debt. When your car needs brakes, the last thing you want to do is take on more debt. Having an emergency fund provides peace of mind while debt repayment is in full swing. Once you pay off all of your debt, then saving a bigger emergency fund is important.
In 2020 when everything was spiraling downward due to the global pandemic, our emergency fund came in clutch. In June, we had our third baby. Two weeks later, my husband got let go by his company due to the pandemic. These things can happen to anyone. It’s a shock.
Thankfully, after my husband and I reached our initial $1000 EF and paid off all debt, we began to save an even bigger emergency fund to expand to 3-6 months of expenses. When I left my job in 2020 to stay home with our kids, we wanted to make sure, as a one income family, that we had a 5-6 month emergency fund in place in case anything like job loss were to occur. In June, we put our system to the test. Thankfully, my husband was able to find employment after a month of looking and was employed relatively quickly. That being said, without an emergency fund, we would have been in a much different place.
If you don’t yet have an emergency fund, this needs to be a top priority. Side hustle, save some birthday or Christmas money, and start today. If you enjoy dining out, don’t for a few months, or cut back on entertainment expenses. Hustle today equals freedom for the future. Once you get the ball rolling, you’ll be amazed how quickly it comes together. Having a cushion in the bank will give you peace of mind whenever Murphy comes knocking at the door.
Oh, and park that money somewhere where you can earn a little interest, like a high yield savings account, but not so close that you can pull from it when your budget categories are running a low at the end of the month. Definitely do not put it in the market! While that can be tempting when the market is returning 7+ percent, if you need the money, it is not easily accessible. It can also have tax implications if you’re investing and selling shares more quickly than anticipated.
Lastly, define for yourself what an emergency is before an emergency occurs. If getting a new TV on Black Friday isn’t an emergency, then you can’t pull money from the EF. Some questions to ask when considering pulling from your emergency fund are:
- Is this necessary?
- Is this urgent or timely?
- Is this for food, shelter, transportation, medical needs, or a necessary repair?
In our house, we use savings buckets associated with our savings account to save for things like car repairs, house repairs/renovations, insurance premiums, new vehicles, etc. This way, we aren’t pulling from the emergency fund anytime we need to fix something. Our goal is to only use our emergency fund in the case of an actual emergency or job loss. We have been trying to save enough in our repair funds to cover even a pretty major auto or home repair without having to worry about dipping into our emergency savings. If you’re not there yet, start with step one. But after that emergency fund has expanded, expand other savings categories so that your definition of emergency becomes a little more emergent.
So where are you with an emergency fund? Do you have one? Do you hope to expand it?
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