Ok – I know I’ve talked about the need of saving for your
golden years (401(k)s and Roth IRAs), but this is a stash of funds you must have!
One of the most important accounts you must establish is an
emergency fund. The purpose of this account is to always be prepared in case of an emergency. Emergencies can range across the spectrum
from replacing a tire on your car to unexpectedly losing your job. :-(
From the smallest emergency to the largest, please be prepared.
Rule of thumb:
- If you are single or have a single income household then it is recommended to have an amount equal to at least 6 months of your fixed expenses.
- If you have a two-income household then it is recommended to have an amount equal to at least 3 months of fixed expenses.
- Fixed expenses are the expenses you have consistently every month. Fixed expenses include (but not limited to) the items below:
o
Mortgage/rent
o
monthly utilities (phone, internet, water bill,
electricity, etc)
o
Car note
o
Insurance (auto, home, etc)
o
Student loan payment
Where to start?
If you need a starting point - my good friend Dave Ramsey
(no I really don’t know him, but love his book) suggest you should start off
with a goal of saving at least $1,000 towards your emergency fund. My suggestion - if you already have over
$1,000 set aside for emergencies, then start savings towards the larger goal of
3-6 months worth of fixed expenses. Also, this stash should be easily accessible/ liquid/ in cash.
You always want to be prepared! If you have a goal of paying off debt, you
will not be able to accomplish this goal if every time an unexpected expense
comes up you are swiping your credit card.
I encourage you to pick up a personal finance book, maybe
Dave Ramsey’s book - The Total Money Makeover is a good place to start.
Step back and think about your financial situation as it looks today. If an emergency occurred today, big or small, would you be prepared?
Rianka D.
If an emergency occurred today I would not be prepared. I typically just find some way to make it work between my checking/savings accounts. But my problem is I'm always pulling from my savings for all of the small emergencies, so I can never accumulate anything significant for my emergency fund. :( Great article!
ReplyDeleteHi Tara!
DeleteThanks for your comment! The key is to save as much as you can when you can. Alternatively, try to also have a balance of living life, too. It's a fine balance that is different for everyone. Maybe my next post will help you out. Stay tuned. :-)