Everything you’re working towards can go wrong. You can lose all of your savings and be screwed on paying the rent next month.
You totally need an emergency fund… But you already know that! We all know that we need an emergency fund just like we know that drinking the night before a day of work isn’t a good idea.
When I first started writing here I wrote about setting up an emergency fund and related topics. Now I find myself helping you with increasing your freelancing income.
I wanted to go back to this personal finance fundamental. I wanted to touch on emergency funds.
I’m not going to lie, I think it’s totally lame to label an account “emergency fund” or to brag about the size of your, um emergency fund. I wrote about emergency funds many years ago because I wanted to learn more about them. That’s exactly what happened.
The last time I wrote about setting up an emergency fund I received some cool responses. Let’s check them out…
Frank wrote in with an explanation of his current savings plan:
I graduated 9 months ago and have an emergency fund of $10k. About 8 months expenses at my current spending rate. If I lost my job or something I could cut back and turn that into about 12 months.
I have that with no fear of myself being laid off. I also am rather risky in all of my investments. I just am not naive about what could happen and want to cover my bases.
Steve had the following to say about how he believes emergency funds work:
One size definitely doesn’t fit all with regards to emergency funds. You should also look at how much debt you have. You don’t want to not be able to make credit card payments, car payments or mortgage payments because you lost your job. Also, you should think about what your deductible is for different types of insurance. You want to be able to cover these deductibles.
Everybody defines emergency differently. How do you define emergency? Is it losing your job? Is it getting in a car accident? Is it a fire burning your house down? Is it an expensive medical procedure?
Grant had to say about balancing an emergency fund with a side business:
The magic number for the emergency fund is a mystery. When I started my business, I was also working two part time jobs and trying to live the dream on the side. I wanted to know I was at least getting a paycheck from somewhere, so that if the new business had a rough month, we could still survive.
Because of that, I only had a 1 month emergency fund. That was fine for ME, because if things fell apart, as a 20-something, I was confident I could find some type of part time gig to supplement things.
But I agree with the point made that you have to find what makes sense for YOU and YOUR situation.
What are you going to do when it all hits the fan?
The comments above reminded me that saving extra money (emergency fund) is important to help you prepare for the worst case scenario. The truth is that everything can go wrong. Instead of stressing about this, you can put some money aside and be prepared just in case.
The choice is yours.
What do you think about emergency funds?