Every major financial guru that I know recommends having an emergency fund, and for good reason. This MUST be part of your financial plans as you move forward. Modest, regular funding into an emergency fund will get you to where you need to be over time.
What Is An Emergency Fund?
Do I Need One?
o Reaching for high interest debt (ex: Credit Cards)
o Invading or borrowing from long term retirement assets (ex: 401k)
What Is An Emergency?
An major unexpected financial expense like:
What Is NOT an Emergency?
How Much Money Do I Need to Put In My Emergency Fund?
o If you were to lose your job this afternoon how long would it take you to find a job better than the one you just lost?
o Fund that amount of time
o Some experts recommend setting aside up to 24 months of living expenses
Is It Normal to Have One?
No, According to a Bankrate.com report:
But yes, you need one...
Where Do I Put My Emergency Funds?
How Do I Get Started?
Begin to fund this slowly, but a small amount from every paycheck. Doing this with auto-deposit when you start with employer is the most effective way.
Do this simultaneously with
It is estimated that some people will take 2-3 years to fully fund this, it is best to get started now.
Prior to building an emergency fund, it is suggested you are out of high interest short-term debt like credit cards.
Make this part of your regular budget. This allows you to say on-track when the unexpected happens. It also gives you more flexibility to be choosy during a job search because you don’t have a financial gun to you head. You have time, and time gives you the ability to hold out for a great role.
As in all things financial, the hard part is getting started. It is better to build this slowly and consistently than to ‘wait until you have a big financial windfall.’