Welcome back, fancies- I’m so excited to share this series of getting your finances together… like the adults we are!
An emergency fund is a type of a savings account. I recommend opening a separate account that you put money in just for any potential emergencies- different from a rainy day savings account.
How much money you put into the account is really up to you- but the larger your balance, the more peace of mind you will have when something goes drastically wrong. I recommend 6 months worth of your incomes- as long as you are currently living within your means, this gives you time to get back on your feet.
Obviously it is unrealistic to start of just putting six months of income away, but start small by contributing a set amount of money each pay check and soon you’ll be only your way. It’ll feel good to reach your goal, even if it takes two years to save up six months worth of incomes.
Wether you are creating this account by yourself or with a significant other, you need to come up with what qualifies for emergency and what does not. This varies from person to person. What will you consider an emergency and what will be taken out of a rainy day savings or put on a credit card?
For some people, a leaky roof repair or the cost new furnace constitute as reasons for emergency fund withdrawals. Others are more stingy, and vow to only dip into these funds if one loses their job and supplemental income is necessary. There are no right or wrong answers, but setting ground rules from the beginning helps avoid unnecessary spending of this money.
Have you set up your emergency fund? What do you consider an emergency? What do you think is the most difficult part of this task?