What is an Emergency Fund?
An emergency fund is a savings allotment that you set aside to cover costs in the instance of an emergency. An emergency can include a tornado hitting your house and you have to pay for unforeseen medical expenses (usually your deductible if you have insurance), your car needing a new transmission, needing to take unpaid medical leave for a few months due to surgery or unforeseen health issues. Any of these things warrants using your emergency fund.
Your emergency fund can be as small as $500 in a savings account, I know mine was only $1000, and that was fine for the last 3 years. If you have to, sell some stuff that you have lying around the house. Books, televisions, used furniture, stuff that is lying around in the garage, heck you can even sell your car if you live close to work like I do. But the point is that you need to put together at least $1000 in cash savings that you don’t spend so that you have a cushion between you and an emergency.
Car broke down, you can afford to fix it. Broke your arm, pay the bill cash. Fired from your job? Two weeks severance pay right there. You’ve got what you need to survive and not yet thrive, but we will get there soon enough.
Over time you will be able to build up more in savings and you will be able to go many more months without needing to touch this emergency fund, but it’s a good idea to have as much as 6 months of living expenses saved (this means rent, food, electricity, and insurance money, not a lambo or a fancy house payment, just the living expenses).
What to do if you are struggling?
If you are struggling to find ways to save towards this fund, consider getting a second job, skipping eating out, cooking all your meals at home, and giving up a few luxuries so that you can save for your emergency fund. Remember, it is only temporary and you will not need to live like this forever, but make the sacrifice now so that you and your family can live a life of security and comfort moving forward.
And just remember, never jump without a parachute. Your emergency fund is your parachute…