Emergency funds are in the event of a financial emergency: unemployment/job loss, medical bills, car repairs, anything unexpected in your life that will cost you money. There are mixed opinions on what is considered an ‘acceptable’ amount, and really, there is no set amount. It depends on how much you’re making and what your lifestyle is. A person making $100,000 is going to have a totally different emergency fund than someone making $35,000.
Financial gurus Suze Orman and Dave Ramsey (who I both admire) have two very different ideas of how much emergency fund should be. Dave Ramsey says that a full emergency fund should cover 3-6 months of expenses, but it’s good to start off with at least $1000. Suze Orman says an emergency fund should be 8 months.
Work your way up. A little can go a long way. And it
can will take a while to build an emergency fund up. Don’t be discouraged if your emergency fund is not as significant as you’d like. The ultimate goal should be about 8 months worth of living expenses. I suggest using a separate account from other savings. The money that goes into this account should only be for your emergency fund. There are multiple things that many of us are working towards saving. Some of us are saving towards the down payment of a house, some of us are saving towards purchasing a car, going to school, traveling, I could go on and on –So, it is okay if your emergency fund is not where you want it to be, just make sure that you are working towards building it! And remember! As life happens, the emergency fund will fluctuate because you’ll be using it for its purpose.
Do you have an emergency fund? Comment below about how you built it!