Emergency Funds: Why is it Important & How Much is Enough?

Life happens, right?

It happened to us recently. A few Sundays ago, I was in the bathroom getting ready.

My husband, Jeff, was in the attic. Some of you are already anticipating what I’m going to tell you. 🫣

He was in the attic inspecting how much electrical wire we had to complete a project.

His footsteps sounded hard and loud!

Then, a very loud crack, crash, and I came running out of the bathroom into the bedroom to see what in the world was happening.

It sounded like the house was falling in.

And it kinda did…Jeff fell through the ceiling of our bedroom.

Lovely.

He wasn’t hurt. Thank goodness!

He was able to catch himself before his whole body came through the ceiling.

The damage was done. A Jeff sized hole in the ceiling of our bedroom.

Of course, Jeff was leaving for a work trip the next day too. 🤦🏻‍♀️

We managed to get the hole covered with plywood, a trash bag, and tarp before he left for his trip.

My biggest concern while he was gone is I didn’t want the heat coming into the house from the attic. Hello late June in Houston = HOT! And I didn’t want any critters crawling in from the attic either!

A few weeks later, we were able to get someone to come and patch it for us.

Why an Emergency Fund?

Accidents happen as does life stuff, right? This is a great example!

This made me so thankful for our emergency fund that we have in place. Which meant, other than the inconvenience, we didn’t have to worry about it. We had the money to have it fixed. Cost and labor was about $350.

This is not a brag post about our emergency fund. This is a post to ask, “are you prepared financially when accidents and life happen?”

I’m pretty sure you’ve experienced a car breakdown, a flat tire, the kitchen sink leaking, a toilet overflows, the dryer goes out, etc. Feel free to add to this list.

When these things happen, they are ALWAYS inconvenient.

If you put space between yourself and the life happens stuff, it will only ever be an inconvenience.

The space or distance you create between yourself and the life stuff is called an emergency fund.

You can also think of an emergency fund as protection from life stuff.

How Much is Enough in an Emergency Fund?

Everyone should have, at minimum, $1,000 in an emergency fund.

This is true if you are a college student or someone that has a full time job and is working toward financial goals, such as paying off debt.

Now, if you have no consumer debt (no car, student loan, credit card, etc.), then the next step would be to grow your emergency fund to 3 – 6 months worth of expenses.

How much is 3 – 6 months worth of expenses? Great question!

Your budget would be a great tool to help you find your living expenses. How much are you spending to live each month?

These expenses would include:

• Rent or mortgage payments
• Utilities – water, gas, electricity, internet, phone
• Transportation costs – gas, tolls, etc.
• Food – groceries, not restaurants
• Insurance – car, house, renters’, etc.
• Medical expenses – copays, prescriptions, etc.
• Pet expenses – food, medical, etc.

Imagine you just lost your job. What do you do? How are you going to live?

I recently went through an organizational restructure in the company in which I work full-time.

Fortunately, I have a job now. However, many of my teammates were laid off. What do you do in those circumstances?

One way to prepare is to have 3 – 6 months worth of expenses saved to help create space or protection between you, your family, and a major life event… like job loss.

This will give you room to breathe and time to find your next job.

Life stuff happens. It’s not fair when it does.

But, you know it will happen, so there is no reason to delay getting an emergency fund started if you don’t already have one.

Tip: Emergency fund money should be in its own separate savings account. Do not include in your checking account.

Next week, let’s talk about ways to save your first $1,000 in your emergency fund.