Emergency Fund – Do you have one?

Today with the large amounts of credit card debt and skyrocketing gas prices many Americans are living paycheck to paycheck without a cushion to fall back on. I strongly believe that everyone should have an emergency fund, which I consider a cushion of money in a low risk, easy access investment that can be used for things like loss of job, medical emergencies, etc.

There are a lot of opinions out there on how much of an emergency fund you need, some say you need 6 months salary in savings, others say 4 months, etc. I really think this number depends on you and you alone. Does your job involve feeding dolphins? Well if so you may need a bigger cushion since another dolphin feeding job may be hard to find, but if you work as a teacher, then a few months may be all you need. You also need to look at your current bill situation. If you have 10’s of thousands in credit card debt, your monthly expenses will be higher than for someone who doesn’t.  My advice is next month to jot down every bill you pay and every purchase you make. Focus only on the must-have expenses and leave out the $500 charge to Bloomingdale’s . Total up that number and that will be the minimum amount you would need to live on each month. Now think about how many months of secure living you want and multiply that total by that number of months. You may also need to think about Cobra Health Insurance if you are no longer working and need to keep your health insurance going. Cobra can run anywhere from $500 – $2000 / month based on the type of plan you are on so be sure to figure those costs into your total.

 So you can see the number of $$ you need to have in an emergency fund can start to grow based on all the expenses you have to live comfortably. Personally I want 4 months of my salary + $4000 (for health-care) in my emergency fund. Sine my wife will be leaving her job as a nurse to take care of our child, I will be the only one bringing in any money, so I want to make sure there is a good buffer for any unexpected expenses. I will also need to make sure I keep the health insurance going.

 Ok, so we know how much we want to save, but where should we save it? I have my emergency fund at GMAC Bank in their Money Market Savings Account. This account has a 3% interest rate, only a $500 minimum balance to avoid fees, free ATM card and free checks. The key here is the free ATM card and checks. In an emergency, I can write a check from my emergency fund and deposit it in my current checking account immediately, or grab cash from the ATM. With this account, I can keep this money separate from my checking account, earn a good interest rate, and still have immediate access to the money. DO NOT put your emergency fund into investments. Most times you don’t have access to sold investments until 3 days after you sold them, plus with today’s market you could lose money. Your emergency fund should be in safe insured (either FDIC or NCUA (credit union) bank where you can get to the money fast.

I realize it is easy to tell you to build a emergency fund . The hard part is putting that little extra money aside into the account and not to use it unless it is an emergency. The sooner you start the faster you will not have to worry about the what if’s and feel comfortable in the fact that is some life changing event happens the one thing you won’t need to worry about is money.

---

NOTE: For posts that contain bonuses, be sure to read the post for bonus expiration dates. Links may work but the bonus may have expired.

---

Other Posts You May Be Interested In:

Saving Made EasyA bunch of my friends and I were sitting around talking and the topic of “saving” came up. My friend...