Building an Emergency Fund
An Emergency Fund is a crucial financial asset to have. We consider it one of the highest financial priorities. This fund is for large unexpected expenses or gaps in income. Note we said expenses, not your entire income. We can calculate our expenses by taking our average monthly expenses from our budget. Our goal is to save for 3 to 6 months worth of expenses. This will cover us for even the worst financial disasters that can happen to us.
Emergency room visits
Where to store our Emergency Fund
We need our Emergency Fund to be accessible at any given time so our location is crucial, yet we must keep it separated from our day to day checking account. We recommend an online savings account. This will give us instant access and high interest rates. Need help picking an online bank? Here you can find our reviews and recommendations on an online bank. | Finance Reviews |
Starting and building our Emergency Fund
Having a recurring transfer from our Checking Account to our Emergency Fund is a great way to get started. Starting with realistic and practical goals is recommended. After all, we simply cannot throw our next 3 months salary into it. Saving just $20 per week will give us over $1000 after our first year of saving. Which is will give us an excellent answer to most financial binds we may find ourselves. Starting with whatever our budget will allow us and increasing it whenever possible will build it even quicker than that. If our expenses were lower than expected one month, we can toss the extra into our Emergency Fund.
When are we finished and what is next?
The goal is to have 3 to 6 months of total expenses saved up in liquid assets. However, it really depends on what you are comfortable. We do advise that you keep at least a small recurring deposit as all times even once you have reached your goal. Remember that expenses do not include our wants such as take out, entertainment, or dress shopping.