Having an emergency fund is imperative to any family’s financial health. After all, being prepared is usually what stands between us and all of those unfortunate things that happen to us. When you’re slapped with an unexpected car repair bill, for instance, your fund absorbs the blow. You shouldn’t be satisfied just to have one either. You need to have a fund that is large enough to sustain you in tough times. Is there a magic number to have in your emergency fund or does it vary from family to family?
At a bare minimum, I think everyone should have at least $1,000 in their fund. That covers most major appliance or car repairs, as well as the deductible amount of most insurance policies. This minimal emergency fund will tide you over until you are secure enough in your finances (and debt is paid off) to focus on a building a larger emergency fund.
Our goal is to keep an amount equivalent to six months of our expenses in our fund all of the time. (Remember we are living on one income). With a beefy emergency fund like this I am confident that we can weather just about any storm. This year alone we have used our emergency fund for car repairs and orthodontic expenses we hadn’t planned on.
So if you don’t have an emergency fund, what can you do to build one up? I have a few ideas to help you get started:
Use your tax refund to quickly fund your emergency fund
Although it’s tempting to use that windfall from Uncle Sam to treat yourself to something that doesn’t normally fit into your budget, resist the temptation. Take your refund, or at least a chunk of it, and place it into a savings account.
Take advantage of your employer’s direct deposit program
By putting a small amount of your weekly paycheck into a savings account each week you can start working towards having a healthy emergency fund. Even a small sacrifice each week, such as $10, will provide you with a little bit of financial security.
Use your “extra” paycheck
Four times each year, or twice depending upon the length of their pay periods, many people receive an “extra” paycheck. Since you’re used to paying your regular bills without using this paycheck, consider using it to fund your emergency fund.
Have a garage sale
Sure, garage sales are a lot of work, but the proceeds from your garage sale could allow you to build a significant emergency fund without even changing your spending habits.
Pick up a part-time job
A part-time job is a fantastic way to scrape up the extra money for an emergency fund. If you’re hesitant to take on a part-time job for any length of time, check with your local staffing agency for some short-time assignments. Simply giving up a day or two a month could help you start saving for that proverbial rainy day.
Once you’ve built up your emergency fund, you should also think carefully about where you choose to keep it. We opt to use a plain, average savings account for our fund. The money is far enough away that I can’t access it for silly, impulsive buys but close enough that I can move it quickly into our checking account.