In this week's challenge you are going to be checking in on your emergency fund!
Why the big importance on having an emergency fund?
Having a funded emergency fund provides you with a a stash of cash to fall back on when “life happens” which means you won’t have to rely on credit or rack up (additional) debt in order to resolve your emergency e.g. your car breaks down, your water heater breaks, you lose your job etc.
In other words, your emergency fund is to cover unplanned circumstances and/or your essential living expenses if needed.
As an example, if you were to experience a job loss, the goal of your e-fund would be to help you pay for things like your rent/mortgage, transportation, food, your main utilities etc. Things like cable, home cleaning services etc are "nice to have" but not essential and don't need to be included in your e-fund.
Once you've resolved the emergency or situation, you can then make plans to replenish your emergency fund.
How much should you have in your emergency fund?
- If you have high interest debt
Set a goal to have $1,000 in emergency savings. This amount can cover most basic emergencies / unplanned circumstances and then aggressively work on getting rid of your debt as quickly as you can.
- If your debt is under control
Your goal should be to have 3–6 months of your essential living expenses saved up for emergencies.
- If you are single
The more you have saved the better, so setting a goal of at least 6 months would be wise.
- If you are married or in a relationship where you have a second income to fall back on
Start with 3 months as a goal and raise it to 6 months once you have 3 months of savings. 3 months is recommended because there are two incomes and it is less likely that you would both be out of a job for the same amount of time.
Where should you keep you emergency fund?
Your emergency fund should be easily accessible and liquid so you can get to it when you need it without having to wait and without having to worry about how financial markets are performing.
That being said, it shouldn’t be tied up in the stock market or in real estate. An interest bearing savings account or a certificate of deposit are good places to store your emergency money.
Your challenge this week is to use the downloadable checklist on this page to determine how much money you should be saving in your emergency account.
P.S. Don't forget to share your progress in the Facebook group!
It's week 19 of The 26 week savings challenge!
This week, your savings deposit amount is $74.00
(If you've been consistent with your deposits, this week's deposit will bring your balance to $741!)
- Make your transfer.
- Check off this week's amount on your savings challenge schedule.
- Share your progress in the Facebook group!
Note: This challenge will be on-going throughout this accountability program in addition to your other weekly challenges.