I recently enjoyed Twenties Hacker’s letter to twenty-something about emergency funds:
Life is unexpected. Things happen every day that we don’t expect to happen. A car accident on our route to work making us late for the day. A family member passing away. A car breaking down and needing a fix-up. Situations like this can be very stressful, especially when money is involved. We all know stress isn’t good for us, yet we continually feel this way. One of the biggest causes of stress in life is money. But why should it be?
An emergency fund is simply a pool of money saved away usually in a savings account that can be easily accessed in case of an unexpected situation that requires it. The main reason that everyone should have one is in case of job loss, and with this recession still going on, you never know if your job is actually guaranteed.
However, an emergency fund can be used for many other things as well. It would be kind of silly to leave money in a savings account specifically for job loss, and then it never happens. I am personally slowly building mine up, and I’ve already had to dig into it once to replace my entire windshield after a massive crack went down the middle of it.
Our emergency fund is one of the things I’m proudest of. I’m in charge of our household’s money, and I divert as much of it as possible into our savings.
Our fund isn’t as big as I’d like it to be right now, and sometimes it’s hard to put the money into savings rather than spending it on fun stuff. But our fund has, on SEVERAL occasions, saved my partner and I from giving up on our projects to work a McJob to pay for our lives. Our emergency fund — and forgoing some immediate, small fun in favor of planning for the future — has enabled us to keep control of our lives.
It’s saved our butts when somebody stole part of our car. And when I lost my job. And when Scott lost his job. And it’ll save our asses again!
If you’re considering starting an emergency fund, Twenties Hacker has a rundown of the who what where when and why. My number one tip is this: automate your savings. Make saving money mindless and automatic and something you have to lift a finger to stop. We started our emergency fund with SmartyPig, but now we bank with a credit union which allows me to set up and manage automatic withdrawals. Currently $50 a week goes into savings. Every week. No matter what.
So I’m wondering about you! Do you have an emergency fund? If so, is it fully-funded (good for six months of bare-bones living)?