Not Made Of Money

Having an emergency fund is imperative to any family’s financial health. After all, an emergency fund 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 emergency fund absorbs the blow.

You shouldn’t be satisfied, though, just to have an emergency fund. You need to have an emergency fund that is large enough to sustain you in tough times. But how much is enough? Is there a magic number that you should have in your emergency fund or does it vary from family to family?

At a bare minimum, I think everyone should strive to have at least $1,000 in their emergency fund. That should cover most major appliance or car repairs, as well as the deductible amount of most insurance policies. This minimal emergency fund should 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 an amount equivalent to six months of our expenses in our emergency fund all of the time. With a beefy emergency fund like this I am confident that we can weather just about any storm. If my husband becomes sick and unable to work, we will be okay until he gets well. If he were laid off, we would lots of time for him to find a new job. This emergency fund is what keeps me from worrying when the rest of the world seems to be in a full-tilt panic.

Once you’ve built up your emergency fund, you should also think carefully about where you choose to keep it. I know there are lots of investment options out there that earn great returns. Mutual funds have been doing wonderfully (the last few weeks) and there are also bonds for more conservative folks.

I don’t think, however, that these are the best places for your emergency fund. The stock market is too volatile. The last thing you want is to have an emergency happen while the market is down and to have to sell your investment at a loss because you have to have the money right now. Likewise, you don’t want to face any penalties because you needed to cash in a bond early.

We opt to use a plain, average savings account for our fund. We have one at ING that earns a decent interest rate. 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.

• Cheap Ways to Get Fit
• Things to Consider When Purchasing Life Insurance

• Why should you/we/us blog? As periodicals, companies, corporations, and individuals turn more and more...
• Greenwash Of The Week: Flying Around The Globe Going To "Green" Expos. This week's Greenwash isn't about a company or a product,...