Category Archives: Emergency Funds

Emergency Funds, Everyone Needs One

Ah yes, the good ole emergency fund. Something we should all have as financially responsible adults.
So how do you go about setting up an emergency fund. How much should you save up? Three months of living expenses? Six? How about six months of income? Net income or gross?

Confused yet? I know I am. The right answer to this question is whatever makes you feel comfortable. Personally I prefer six months of living expenses, calculated a little generously, so I have some wiggle room in case I ever actually needed to use it. Of course in a situation where I actually had to use my emergency fund to pay all my day to day expenses, I would definitely be slashing expenses left and right. Unlimited everything cell plan? Let’s downgrade that to a minimum. High speed internet? Get rid of it and just go back to going to the library every time I needed to use it. Point is, I’d do everything I could to cut expenses and make that six month supply last as long as I can.

With my current expenses, my emergency fund is set at $4500 right now (but will be increasing in the future due to moving out to my own apartment). A friend of mine with almost the same income/expenses as me prefers to keep his emergency fund at $10K. Nothing wrong with that, it’s all about what gives you the financial peace of mind so you know you will be covered if something were to happen that eliminates your primary source of income.

Once you have that emergency fund funded properly so that you are comfortable, then it is time to start investing and getting on the track to achieving financial independence.

How do you calculate how much to have in an emergency fund? Does anyone use a different account other than a regular savings account for it? Please leave a comment below and continue the conversation.