5 Reasons Why You Need an Emergency Fund NOW

Tara and I decided not too long ago that we would always have an emergency fund of at least $1,000 at all times. The first thing we did, even before paying off our debt, was setting aside this emergency fund. In the 4 years we’ve been married, we have had to use our emergency fund twice. Had we not had that money set aside, we probably would have been in big trouble. From now until the foreseeable future, we will always have an emergency fund that will last at least 3 months.

Here are 5 reasons to have an emergency fund:

1. You or your spouse (or both) lose a job. This seems to be the most popular reason to have an emergency fund. Sometimes losing a job is out of your control . Other times you are in a bad job and need to get out. Whatever the reason, having an emergency fund will make this less of a crisis. A little over a year ago I lost my job and was without work for 3 months. Luckily our emergency fund covered our expenses and once I got another job, we were able to build it back up again.

2. You may get sick or be unable to work. Sickness or disability can be an unfortunate reality for some people. A friend of mine who worked in construction broke his arm and was unable to work until his arm healed, leaving him without pay. If he would have had an emergency fund, things would have been much easier to deal with.
3. Your car breaks down. Cars can be the best or they can be the worst. No matter what car you drive, your car is always at risk of breaking down at some point. Depending on what work needs to be done, it can cost you a lot of money. Just this past year, fellow Fund Family member, Jacob, had two car repairs that cost him over $2,000 total in the span of a few short months. This came around the same time he had a baby and had to pay for graduate tuition for the new semester. Things can pile up quick, and he was very grateful for his emergency fund when that all happened.
4. Your AC or heating goes out. This applies more to homeowners. As I’m writing this, the temperature outside is 14 degrees, not having heat in this weather would be miserable.
5. You want piece of mind. This may be the most important reason. Having extra money set aside is always a good feeling. It isn’t fun when you have to use that money, but it’s better than having to borrow it from someone else.   

There are plenty of other emergencies that can come up. Hopefully these 5 give you a good idea of how unpredictable life can be and why you should be prepared.

How much to put in your emergency fund

The exact dollar amount will vary from person to person. We calculated our emergency fund based on our budgeted monthly expenses.  I usually make a very simple spreadsheet that outlines all of our expenses for a month.

Our total expenses in January came out to be $1,579 dollars. A safe number to calculate would be to take the total expenses and multiply it by 3.  

However, this number can be a little deceiving. If a true emergency were to happen (lose my job, get sick, etc.), then certain expenses would be cut. For example, we wouldn’t have a budgeted amount of $50 for eating out. This number would go straight to $0.

The way we calculated our 3 month emergency fund number was by adding up all the expenses of things we couldn’t live without (rent, groceries, gas, etc.). This number ended up being a bit more reasonable.

This number will continue to grow as our expenses go up throughout the years. We plan on adding around $1,000 every year or so, depending on our situation. When emergencies do happen, we use the money, but quickly put money back into the fund to be ready for the next emergency.

Where to put your emergency fund

Because emergencies are unpredictable, you want your money somewhere where you can access it quickly. Tara and I put ours in a Chase savings account which is linked to our regular checking account. This makes the funds almost immediately available to us if we were to need it. This should not be treated as an investment account, so do not be worried about getting a low rate of return on it.

Make sure that you aren’t getting charged fees in the account where you decide to store your emergency fund. Hopefully your money stays in the account for a long time, so having fees wouldn’t be ideal.

There are plenty of reasons to have an emergency fund. Our reasons may be different from yours. Hopefully you don’t ever have to use your emergency fund, but chances are, you will. It’s best to be prepared for when those times come. It will make life a little less stressful. It did for us.

Have you had a time when your emergency fund came in handy? Please comment below with any questions or email us at thefundfamily@gmail.com. We would love for you to share your experiences with us!