My Favorite Part of Our Finances: The Emergency Fund

I talk a lot about budgeting and getting in control of your finances, but I haven’t really talked about emergency funds yet, which is crazy, because our emergency fund is my favorite part of our finances!

It’s not all that exciting and it’s not fun and sexy, but it’s a wonderful thing to have an emergency fund.

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My Favorite Part of Our Finances: The Emergency Fund

Why You Need an Emergency Fund

To avoid debt

Emergencies cause debt.

Unexpected car repairs, travel and expenses to visit a sick family member, a lost job, a dead refrigerator… Without an emergency fund, all of these things could cause debt.

If you’re trying to get out of debt or just want to make sure you stay out of debt, an emergency fund will keep you from charging things to your credit card or getting behind on your bills when unexpected things happen in your life.

To have peace

I love our emergency fund because it gives me SO much peace of mind. I’ve said it multiple times, but money stuff does not have to be stressful!

Emergencies are stressful enough without even thinking about the money part.

If you have a sick family member, that’s super stressful. Wouldn’t it be so much less stressful if you weren’t worried about how you were going to pay for a flight to see them or how you were going to handle missing a week of work?

An emergency fund can take a huge chunk of stress out of stressful situations.

How to Get an Emergency Fund

Set a goal and then set mini goals along the way

To create an emergency fund, set a goal for how big you want that fund to be. Most advisors recommend saving 3-6 months worth of expenses for your emergency fund.

Since we have pretty low expenses and I’m extra cautious with money, my goal has always been to have 6 months worth of expenses saved.

I rounded up our expenses to $1500/month, which means $9000 would give us a fully funded, 6 month emergency fund. When I made this goal about 5 years ago, my first thought was, “That’s a ton of money! How are we ever going to save that much?!” Most months we were lucky if we had $100 leftover to save, so I knew this wasn’t exactly a short-term goal in our situation.

What helped us fund our emergency fund was setting smaller goals along the way. I had always tried to keep a small, $1000 emergency fund, so that was the starting point. I set smaller goals to get to $2000, then $5000, then $7000. Those smaller goals still took a lot of time, but it felt good to know that we were heading in the right direction.

There were times that emergencies did pop up and we had to use some of that money. It was discouraging because it slowed our process towards the next goal, but the emergency fund was doing exactly what it was supposed to do! Those emergencies were much less stressful because we had money to handle them and we didn’t have to go into debt.

Because of our low income, it took us years to get our emergency fund to where we wanted it. Years. Totally worth it.

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Cut back. Work extra. Sell stuff.

The get money to put in your emergency fund, look for ways to cut back your budget so that you can save the difference.

You could also try to work some extra hours to get some more money.

I’m always a big fan of selling stuff for a little extra cash. You get to get rid of things you don’t need and put money towards your goal. Win-Win.

Keep the money separate

It’s really important to keep your emergency fund money separate from your regular money. You don’t want to be temped to dip into it here and there.

It’s not “I need these cute shoes to go with my blue dress” money. It’s emergency money. Like, actual emergency. Not fashion emergency.

We keep our emergency fund at a separate bank in a savings account that earns the tiniest bit of interest. It’s a little less convenient to access, which kinds of helps keep us from thinking about it or wanting to use it.

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⇒ Do you have an emergency fund? Are you trying to build yours up? What’s your end goal?