Your Emergency Fund

One of the things that this pandemic has shown us with certainty is that nothing is certain. People have lost jobs, businesses, commissions, etc with little to no notice. You may have not been financially prepared this time around, but you can use this as a learning experience and motivation to be better prepared in the future. 

An emergency fund is the key to financial security in an uncertain world.

This is one of those paramount "must haves" to protect you and your family. Determining how much you need and where to put it is fairly simple. The hard part is accumulating the money, and then having the self discipline not to touch it unless there is a TRUE emergency.


LET'S TALK THROUGH IT...
1. HOW MUCH DO YOU NEED?
- Take a look at your budget and calculate your monthly expenses. This includes all bills and essentials like food and household items. I wouldn't include entertainment or shopping "extras" in this. Take this amount times 6 (some say 3, but I like the extra cushion). Let's say your monthly expenses are $2,000. Your goal emergency fund should be $12,000. This means you could continue to live and meet your basic needs with ZERO income for 6 months. 

2. WHERE SHOULD YOU PUT IT?
- Personally, I'm a fan of high yield savings accounts. You can also use money markets or a regular savings account at your bank. I'm not one to use the "cash under the mattress" approach, but I suppose that would work too (it's not like your money is going to match inflation in a regular savings account anyways). Essentially, it needs to be readily accessible. This means it can't be invested in stocks or tied up in bonds. The point of this money isn't to earn you money, it's to protect you. Think of it like insurance. 

3. HOW DO YOU GET IT?
- The same way you get any other sum of money! Set aside a portion of your monthly income towards it. Work extra. Sell your motorcycle. The list goes on...

4. WHAT SHOULD YOU SPEND IT ON?
- Only, and absolutely only, financial emergencies. Job loss, major medical bill, furnace breaks mid winter, world wide pandemic crushes the economy and quarantines us all, etc. Once you pull money from your emergency fund to cover the expense, you will need to spend the following months replenishing the fund.