Jun 02 2008

Want an emergency fund? Keep these things in mind

If you don’t have an emergency fund but would like one, remember that only you can make it happen. Unless you set money aside in a specially designated emergency account (never in your main checking account!), you’ll never have one saved. Simple as that. It takes effort and focus.

Establish a dollar amount you want to save. If it’s six months of expenses you want, you should know how much it costs for you to live per month. Add up your fixed bills, throw in how much you spend on gas, groceries, personal care, and whatever else each month, and that should give you a ballpark figure of how much you’ll need each month. Hopefully, that amount is less than your monthly income. You can inflate your savings goal by 10 percent or so to give you an extra cushion, in case you aren’t sure about your expenses.
 
Define what an emergency constitutes. Maybe it’s where you’d like to keep your $500 car insurance deductible, if you need to file a claim. Maybe you work from home, and earning an income means you must have a working computer, and you’d like to have money to replace it on a moment’s notice, if you needed to. Maybe you live 1,000 miles from family, and would like to be able to take the next plane out of town if someone becomes ill. Or maybe, you want to prepare for the worst and be able to pay all of your expenses for a few months in the event of a job loss.
Think about what would have to happen in your life to make you tap your emergency fund. Then, stick to it.

Talk about it! Sharing a goal with someone else makes that goal much more real. If you’re married, you’ll want to have your spouse on board with you. You don’t have to tell the world, but telling someone that you want to save three months of expenses, or $10k or $15k or whatever will help you reach that.

Pay yourself when you get each paycheck. If you feel like you can spare $50, great! Set it aside in a savings account, away from where you can easily spend it, but accessible if you need it. At the end of the pay period and right before you get another check, put the rest of the money into your savings account. Be careful not to sock away too much too fast, until you know for sure you can part with that money without being painfully pinched.

After a few pay cycles, try to increase your savings contribution. If $50 per paycheck felt really easy, see if you can make it $100 or $150 or more.

Dedicate extra money to your emergency fund. Maybe you don’t want to put 100 percent of your extra money aside. That’s fine. But how about 75 percent? Or 50 percent? You’ll reach your goal a lot faster if you throw those little windfalls into your account, rather than spending it.

Be sure your emergency fund is easily accessible and earns a decent amount of interest. Mine is in ING Direct, and I can transfer it to my ING checking account if I needed to and use my debit card. Or, I can send it back to my brick & mortar bank or send electronic checks from it. Right now, I’m earning 3 percent interest. If that rate holds the same once I’m at the $10k mark, I’ll be earning $25/month in interest!
 
Periodically, revisit your savings progress. Every so often, it can be helpful to look at how much you’ve saved in a particular period of time. You’ll hopefully see positive progress–and that’s worth celebrating! Seeing your goals being met can help you keep on track. If you aren’t progressing as much as you had hoped, maybe you can find areas where you can improve. 
Set a goal date. Be realistic, but push yourself! You want to set yourself up for success, and if you’re too ambitious with your goal date, you could be really disappointed if you miss the mark. On the other hand, don’t say “June 2011” when realistically, it should take you 12 months.
Be patient. Don’t be discouraged if it’s taking you longer than you thought to save. Life happens. And, people have different incomes and expenses, so it isn’t good to compare yourself with others. The important thing is to make positive progress.
 
Do you have an emergency fund? How long did it take you to grow? What advice would you like to share?
If you don’t have and emergency fund, why?

 



4 Responses to “Want an emergency fund? Keep these things in mind”

  1. We have had our baby emergency of $1000 in ING for several months now. We’re in debt reduction mode, so I’m hesitant to start to add more monthly, or at least an amount that I would like-$100 or so- a month b/c we want to get rid of the debt. However, since most of our deductibles are $1000 or more, I really want to contribute more. I think we’ll start with $10/month just to get the ball rolling, and add more as each debt is cleared up. Great post!

  2. Great post, Kacie! We started contributing to our emergency fund when we first got married in Feb ’07. It’s been awesome to see it grow–nearly 60% there! Once we reach our goal (six months expenses and income), we’ll refocus that monthly contribution to other accounts that we’ve been slowly building (house down-payment fund, vacation fund, etc). It’s almost like a game, and I love it!

    Something we haven’t tried yet but love the idea of is having a visual of your goal. Say you’re trying to pay off your mortgage…draw/sketch the outline of your house on an 8×11″ sheet of graph paper. Count up all of the squares inside the outline and divide your total mortgage by that number. So if your mortgage was $150,000 and you had 300 squares, each square is worth $50. Color in all the squares that you’ve paid off so far, and continue to do so as you make additional payments. Stick it up on the fridge as a constant reminder. Then when you want to spend $100 frivolously, you’ll think “wait, that’s two squares!”

    We heard about that from Joe Sangl (http://www.josephsangl.com/) a Christian financial advisor that works with a church we went to in Anderson, SC. We’re planning to use the “fill in the squares” bit for our house down-payment fund. Can’t wait!

    Sally Ann’s last blog post..road trip

  3. We had 14K saved until we switched gears when we moved out of state and purchased a home. We just got back up to 3K. It will stay there until we have finished attending family events, going to see family for Christmas, paying for my spouses last class to graduate, and buying a second car. Then we hope to fund it to 12K. Its that second car thats going to take a very long time as our family wants a minivan to accomidate our kids.

    We did the color in the squares for our house downpayment. Worked on it for 6 months. But I hated it – it didn’t work for us. Because the things ws in the shape of our goal it often was colored in wrong. Since it took too much time to moniter we bagged it for our current goals. We have thought of just doing a rectangle like companies do when they are trying to get something funded through donations (the thermometer picture). Much easier to keep track of what should be colored in and if its filled in appropriately.

  4. I like the idea of having a visual aid as you’re working toward goals.

    I’m still toying with numbers, but I think as soon as we finish our emergency fund, we’ll set up separate accounts in ING for gifts, travel, a second car, and other things that pop up in life (not to mention the retirement accounts and saving for a down payment. Oy.)

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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