Do I really need an emergency fund? Why can’t I just use my credit card if an emergency pops up? Insert eye-rolling!
Let’s start at the beginning. A true emergency is unexpected, necessary, and urgent. The dreaded auto mishap on the highway, cutting yourself while chopping veggies, break a tooth on a fortune cookie (yes, it really happened to me) or a sudden job loss are actual emergencies.
I love my emergency fund. Actually, I LOVE my emergency fund. It’s there to be a buffer between me and whatever curve ball life decides to toss. Once you become debt-free then saving your fully-funded emergency fund can happen quickly. Depending on your total payments made in previous months it’s possible to have this step complete in a short time. A fully funded Emergency Fund should be 3-6 months of your living expenses. My recommendation is 6 months. Better safe! Especially now.
Ok, so how much do I need to save? Calculate your monthly basic living expenses. Most of these are fixed monthly amounts except for utilities and food. Look at previous months to determine on average how much you spent. Cover what I call the 4 walls. All your basics (home, transportation, food, utilities) MUST be covered.
The total for 1 month in the example is $2500 to cover your basics. Save for 3 months – $7500, 4 months – $10,000 and 6 months – $15,000. Imagine having 6 months saved and life happens with job loss, medical diagnosis, auto accident, and yes even a pandemic. I’m not suggesting you don’t be concerned but the weight off your shoulders is “ahhhhhh we got this”.
Recently as many of you know my father suddenly passed away in late July. Once the telephone call was received I was on the road. A friend looked up hotels in the area, texted several options and I made reservations not concerned about how I was going to pay for it. The entire time I was there handling multiple details I never once worried about the expenses. My emergency fund was in place and afterward, I simply paid for everything and now I’ll begin rebuilding what I used.
While we dread having to use our emergency fund, especially in this case, it gave such peace knowing this is exactly why I have it. Did I mention……I LOVE my emergency fund!?!
If you would like to learn more or need help calculating the amount for your situation to save reach out to me. I love helping people set themselves up for success and peace of mind!
Your Financial Coach,