In Case of Emergency
Tuesday, October 12, 2010 at 7:00AM Emergency funds. These are the things that your parents talk to you about. It's that rainy day account - that pocket of money to tide you through the rough patches.
Do you have one?
I actually DO have an emergency fund, and it's about two months away from hitting my goal. Americans don't tend to be so great at saving, but with the credit and housing crash... I'd be willing to bet a lot of us have seen the value of socking money away!
I've always been a saver, but I found that my saving became EONS more effective when I created rules for myself. For instance:
- I always pay myself first. My Emergency Fund saving gets treated like a bill - nonoptional. It's also the first thing on my "Payday Bill Pay" list. I transfer each deposit by 8a on Payday.
- I never put less than 10% of my paycheck into my Emergency Fund account, and anything leftover from the last pay period gets loaded into my fund, as well.
- My Emergency Fund is a one-way street. Money goes IN, not OUT! The only acceptable use of this emergency money is job loss, medical emergency, or if someone close to me passes away suddenly and I need to buy a plane ticket. This is a very important rule!!
- Emergency Funds are not a loan office. I made the mistake once of loaning my emergency fund money to my ex-fiance. Notice the "ex". Thankfully, he paid me back - but I was nervous until that money was back in my account.
Also...
- You'll often find that online accounts offer the best interest rates! BankRate is a great resource for bank-shopping.
- A good emergency fund has at least eight months of salary in it.
- Make sure that whatever bank you are using for your Emergency Fund is FDIC insured. Check on your bank's status at MyFDICInsurance.
Consistency is the most important thing. I don't skip payments into my account so that I can buy a new dress. If I ever feel the inclination to skirt my rules... I just remember that it's not a matter of IF I'm going to need this emergency money, it's WHEN. People lose jobs, have a medical emergency - I'm going to need this money at some point! I cannot even tell you how much peace of mind it gives me to know that if I lose my job or somehow find myself in dire straits... I won't be in crisis. I will have backup funds to buy food and pay my rent. Don't be fooled - emergency funds are an absolute necessity.
What about you - what are your very best tips for saving your dollars? What did I leave out?
EXTRA CREDIT: Other Helpful Money Posts Across the Internets:
Living Within Your Means: Nodakademic
Hidden Costs to Home Ownership: FortyTwentyFour
Why Rent When You Can Buy? US Meets UK
Affordable Groceries: That Wife
Savings Schmavings! Parenthetical Me
Reader Comments (11)
This is somewhere that Mr. N and I tend to fluctuate. We should have an e-fund, but we really don't. We're saving, but then we get a lump sum and use it to pay off a loan. So by reducing our debts, we're eliminating the need to have as much salary coming in on a month-by-month basis. But we're not really saving for the event that no salary would come in. Clearly, this needs to change.
Thanks for the link! We've just started using mint to track for our emergency fund and I like your way of thinking. I'm a bill and i'll pay myself first :)
This is a great reminder that we really should have an emergency fund. My only semblance of one is the savings bond that my grandfather left me. I won't touch it unless something really bad happens - most likely vet funds for one of our animals - but it's only about $1,000.
Unfortunately since we're still in our undergrad, we really live paycheck to paycheck. Rent alone is about 50% of our income!
ugh, this post made me TWINGE! We had an emergency fund, but it died last year. The husband got laid off (right after I had quit my job to stay at home with the kids) and then we spent the rest of it moving to Europe. But it is a goal and I slowly, but surely will get back there! But this post SO made me want to get more disciplined about it. I think it is SO important!
My husband and I are working on this right now. I recently heard that we should be putting aside 6-12mo. of earnings in our emergency fund, and this is the goal we're trying to meet. We also just met with a life insurance agent and I'm looking into alternative savings options because I don't have a company 401k. I 100% agree that the money you put aside for savings should be the first thing to come out of your paycheck. You get used to living without that extra bit of cash and it's well worth it in the long run.
My husband (finance nerd ;) ) has definitely helped me understand the inportance of saving, which has helped me prioritize the act of putting money aside. I hope more people are taking this to heart after the recent financial crisis' we've gone through.
@Nodakademic - it was a big mental shift for me! I always thought paying off debt was the most important thing, but then I read a few articles by Suze Orman about how fluid cash is #1. That when you need to act fast or an emergency pops up, you really need cash at easy access to prevent even BIGGER disasters. I had never thought about it that way before. For me, I started out getting the super-desperate times e-fund set up (just a couple month's worth of cash) before starting to work my savings/loans at the same time.
@Christiana - I use Mint too! Claremont Road alerted me to their new goal-tracking tools - I love it!
@Anni - that's super-tough. Student finances are pretty rough. sure after graduating and being able to work full-time with no tuition payments will feel pretty exciting!
@Destiny - Well it sounds like you used your e-fund for all the right reasons!!! That's what makes me sad - thinking about the day that I'll actually need it! I think part of me will be annoyed that I have to do it all over again... ;/
@Liz - I hope so too - nothing would make me more depressed than to have an emergency and lose everything when I could have just drank fewer Starbucks drinks or made lifestyle cuts to create a safety net. I'd be interested to know if Americans have become better at saving after all the housing foreclosures.
I switched jobs about four years ago, and was lucky enough to get a nice bump in my salary. What I decided to do was to still live off my old salary, and save all the extra $$ that I started to make. Every time I got a cost of living increase (I work for the Feds) or a raise, I'd add that to the total saving amount. I also paid off my car and my credit cards a few years ago, but I'm still "making credit card and car payments", only this time it goes straight into savings! And since I travel for work, any extra that I get from overtime or per diem goes right into savings, too! It's amazing how quickly the savings can add up if you treat it like another bill you've got to pay...
This is great! We really need to be more strict about what we're putting into our savings account for an emergency, instead of just saving for specific purchases.
OMG, 8 months of salary? That's not possible for me on a student salary! My emergency fund would consist of me taking out money from the account that is supposed to be used to pay back my student loans. That account isn't paying my loans right now because my loans are deferred. So that money is just sitting in that account and gaining interest until it can be used to pay off my loans once they go off deferment. So I guess that would be my emergency money. It's technically borrowing from something else, but in an emergency it's the best I would have.
Oh and I do have a crapload of medical bills right now. $3500 worth of medical bills. But I find that if you talk to the hospital they will often help you out. At least mine is helping me. I only have to pay $100/month and I'm not charged interest. But then again i do go to one of the best hospitals in the world so maybe they are just nice like that.
This is something that my husband and I need to work on. With some extra income coming in, I am going to start paying the savings account "bill" and hope to have a chunk of change if anything should happen! Great post.
We have a relatively small emergency fund right now that's hovering just below $10k, but we've been steadily increasing it month by month. It's something that's really important to me! We also have an "oh crap!" fund for more short-term emergencies, like cars and appliances breaking. Savings funds do nothing but make each day feel better for us financially!