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Hello everyone! Welcome back to my financial journey. Previous I’ve shared how I manage my money and one of the steps was creating an emergency fund. I stated that I’ve already completed this goal – still true! Today I want to share what an emergency fund is, why it’s important, how much you should keep in it, and how to save up one yourself.
What is an emergency fund? An emergency fund is an account for funds set aside in case of the event of a personal financial dilemma, such as the loss of a job, a debilitating illness, or a major repair to your home [according to Investopedia].
Why is it important? Life throws unexpected financial surprises our way. It can not only keep your stress level down but also helps you avoid debt or making poor financial decisions [i.e. borrowing money and getting stuck with high interest rates].
How much should you keep in it? Initially you should save $1000-$2000. According to the Dave Ramsey baby steps, you should start with $1000, however, I just read Money Diaries and they recommended a minimum of $2000. You’ll have to decide for yourself. This is the barebones for your emergency fund. Once you reach that, you should start paying off debt and save for other goals while continuing to add to your emergency fund. Ideally you want to end up with 3-6 months worth of expenses in case of job loss. For Joe and I, we are trying to save up $20,000 and maintain that account. That means if we have an emergency expense, such as an unexpected medical bill, then we can use some of our emergency fund then save up to maintain that $20,000 balance.
How can you save up for an emergency fund? Saving for an emergency fund will look really different for everyone. I’ve personally hit my initial goal of $2000 to start my emergency fund and am focusing on my ultimate goal of $20,000. For me, this means designating a certain portion of the money I’m saving each week into this account. I use the Qapital app to work towards my financial goals. This is 100% not sponsored but we do each get $5 when you sign up and start saving! I’ve been using the app for over six months and love it. Joe and I can work on goals together and set up rules for transferring funds through the app. All the funds are FDIC insured and held in one of their partner banks so I feel confident saving my money here. If saving $1000 seems impossible, I challenge you to re-evaluate your finances. Take a look at how you’ve spent your money in the past month. Anything you can cut out or spend less on? If not, my favorite piece of advice for those barely managing to pay the bills – put 1% of your paycheck into an emergency fund. This means if your take-home pay is $1000 every two weeks, you would set aside $10 every paycheck. I promise you won’t even notice it’s gone.
I hope this was helpful!
Do you have an emergency fund? How did you save up for it?
