I can’t understate the importance of an Emergency Fund. Recently, I had a string of expenses, and if I hadn’t had cash saved up, then I might have found myself in debt.
They say when it rains it pours. That recently happened to me. In the past two weeks, I had to replace the battery in my tractor, take my truck to the dealership for service, and replace a power vent for my furnace. In all, I was looking at about $650 in expenses. While not a lot in the grand scheme of things, it was still a decent amount to shell out in such a short time.
If I hadn’t had an Emergency Fund, then most of the above would have ended up on a credit card. It is mentally painful to pull money from savings, but it is a good feeling to know that unexpected expenses won’t put me in debt.
Could you handle an unexpected expense? According to CNBC, around 40 percent of Americans would struggle to come up with $400 to cover an emergency. The number one thing that these people blame is that they have too much debt to save up a significant amount of cash.
Having significant debt will suck up lots of cash. This fact brings up another point about eliminating as much debt as you can while saving up an Emergency Fund. Eliminating debt and saving up cash are two things that work in tandem, and you will find it difficult to save if most of your disposable income is servicing debts.
How Much Should You Save?
The rule of thumb is that you should have 3 to 6 months’ worth of expenses in cash. You may need more or less depending on your individual circumstances, but 3 to 6 months is a good place to start.
I currently have around 5 months saved. I would like to bump that up to closer to one year since I have a second home and a rental property. You may need more or less. Once you figure out what you need to save you can execute a strategy to do so.
I worked on paying off all debt besides the mortgage. Once I was debt free, I was able to accelerate my saving goals. My money is kept in an online savings account that I have penalty-free access to.
The importance of an Emergency Fund was highlighted to me these past couple of weeks. An important part of staying debt free is keeping an adequate cash cushion that will prevent you from slipping back into debt when unexpected expenses arise. There are many ways to achieve your savings goals. The proceeding was just mine. How are you saving? Share below.
Writer and Investor. Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.