Recently my dog, Dakoda had emergency surgery for a ruptured cornea. Poor Buddy! I was out of town on business and my parents had to make a lot of quick decisions for the health of my dog.
The surgery was about $2,000.00 to remove his eye. Thankfully, I have an emergency fund so the decisions could be made without having to worry about the financial burden during this emergency.
Do you have an emergency fund?
I first learned about emergency funds in a Dave Ramsey Financial Peace class. The idea resonated… because we had infants and were always running to the doctor, unexpected repairs had to be made to our house and life just happened.
So over the years, I’ve kept with it and having an emergency fund has reduced my stress when life happens.
How much should be in your emergency fund?
In Baby Step #1, Dave Ramsey recommends a $1,000 starter emergency fund. The goal is to save $1,000 as fast as you can to cover any unexpected life events without going further into debt. If you’re tackling credit card debt or paying off student loans, $1,000 might be all you can save without compromising other priorities.
I’ve also read that your back up fund should have $1,000 for each decade, so if your in your 30’s you should have $3,000 in your fund. As we age, our emergencies tend to be more expensive.
Besides a Starter Emergency Fund, experts advise having an account with 3 to 6 months of living expenses. In Dave Ramsey’s Baby Step 3, he recommends that once your debt is paid off, you take the money you were paying on your debt and build a fully-funded emergency fund that covers 3–6 months of your living expenses. This protects you from disasters like your water heater quitting, kitchen flooding, the loss of a job or your car breaking down. And you don’t have to go back into debt.
Several years ago, I was laid off from my job, newly divorced, with 2 teenage kids, and a house payment. Unfortunately, I didn’t have much of an emergency fund. Fortunately, I found another job within a couple of months. This experience embedded in my mind, the need for a 3 to 6 month emergency fund so I’d never have to worry like that again!
Ideas for funding your emergency fund
Finding ways to build up your emergency money isn’t easy. Here are some great ideas to get you started:
- Deposit your tax refund directly into an emergency account
- Save the cash you receive for birthdays and Christmas
- Stop subscriptions and put that money towards your emergency account
- Sell stuff – hold a garage sale or sell items on eBay
- Get a second job (deliver groceries, walk dogs, drive for Uber or Uber Eats)
- Work overtime
- Bonus money – put it directly into your emergency account
- Rent out extra space in your home
Where should you store your emergency money?
Easy access to your money is the priority. It’s the whole point of an emergency fund. Most experts recommend using a separate savings account so you won’t be tempted to spend the money on day-to-day items or splurges. Your funds must be liquid and with no cost associated with getting your hands on the money in your emergency fund.
Do you have a starter emergency fund or are you working on funding your 3 to 6 month emergency account? How are you funding your emergency fund? I’d love for you to share your ideas and experiences.