Why My Emergency Fund is the Bombdiggity
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Over the last several months, we’ve had to do a ton of repairs. And, I don’t just mean the twenty-dollar patch and paint kind of repairs. I mean the big stuff. The stuff that costs hundreds of dollars to fix. The stuff that you never really see or think about until it breaks and you need it. The stuff that makes me want to pull my freakin’ hair out because it costs so much money to fix.
Of course, I didn’t have to pull my hair out. Me and my pretty mane made it through these trying times (mostly) intact.
Yes, it is frustrating to spend money on repairs. It’s especially frustrating to put money back into a house when you know you aren’t going to see any return on those repairs. But even though I was a wee bit perturbed, I didn’t sweat it too much. “Why’s that?” you say. Because I gots myself an emergency fund! HOOOOOO!!!
What is an Emergency Fund?
If you’ve been hanging around any personal finance blogs for long, chances are good that you already know what an emergency fund is. Henceforth, I dub you peeps “Level 1 Rockstars” and hereby permit you to skip ahead to the next section. If you want to hang around with us, a quick review certainly wouldn’t hurt…but I ain’t mad atcha if you want to skip ahead. For those who want a quick refresher or don’t know what an emergency fund is, let’s discuss.
An emergency fund (sometimes referred to as an e-fund, EF, or any number of other abbreviated terms) is a savings fund that you keep stashed away just for emergencies. Pretty simple, eh? This fund should be easily accessible (think savings account not CD or mutual fund) and should be kept separate from your other accounts. NOOOOOO MIXING HERE PEOPLE! This account is for emergencies only and shouldn’t be touched unless you absolutely need it. Capiche?
When to Use Your Emergency Fund
No matter if you are financially independent or deeply in debt, things always pop up. Your emergency fund is there to help you cover the cost of these emergencies.
So, what constitutes an emergency? Well, if your car breaks down and you need to repair it, you have yourself an emergency. If your water heater goes kaput, you have an emergency on your hands. If you lose your job and can’t find work for a few months, that my friends is a definite EMERGENCY! Your emergency fund should be used accordingly.
Getting your oil changed and paying for gas – not emergencies. If you’ve forgotten about your anniversary, going out to a nice last-minute dinner may seem like an emergency, but it isn’t. Scoring backstage passes for your favorite band is pretty freakin’ cool, but it isn’t an emergency either. Those things should be budgeted for in your monthly budget, y’all.
How Much Should You Keep in Your Emergency Fund?
Now that we know what an emergency fund is and what it’s used for, you probably want to know how much you should keep in there. Unfortunately, the answer is “It depends.”
For most people, a fully funded emergency fund should have somewhere between 3-6 months of living expenses. However, if you have a highly variable salary, have a lot of expenses, or just want to be more conservative, you may want to keep 6-9 months of expenses in that bad boy. If you have a very stable job and low expenses, you’re probably good to go on the lower end with 3 months expenses.
The key is that an emergency fund should help you to feel comfortable without harming your other savings plans. Personally, I like to keep mine sitting in the 6-9 month range because I like knowing that we’ll be fine financially for a long time if anything ever happens. Plus, I tend to be on the conservative side when it comes to handling my money.
Now, just because you can’t fully fund your emergency fund immediately doesn’t mean that you shouldn’t start doing it. If you are trying to pay off debt, the very first thing that you want to do is to get yourself a starter emergency fund of at least $1,000. Try saving $100 a month, more if you can. That way,
if when an unexpected expense pops up, it doesn’t derail your debt payoff strategy. You simply pay for the event out of your emergency fund, fill the fund back up, and keep on rolling with your plan as if nothing happened. #YouGotThis
So, where do you find this money? Easy. Go back to your budget and expense tracking. Look for a few spots to make some easy cuts, and get rolling! Even better, use a free app like Trim to do it for you. (You can check out our full Trim review here.)
Then, just plop that money in a savings account…and you’re good to go!
Why an Emergency Fund is the Bombdiggity
God, I LOVE EMERGENCY FUNDS!!! Seriously, I love ’em. And while I’ve had to dip into mine many, many times over the past few years, I’ve never had to do so with as much regularity as I have over the last few months. Without our emergency fund savings, our financial goals would have been derailed (for a while) by all of the emergencies we’ve had to deal with lately.
You know that old saying about how when it rains it pours? Yeah, that is how it has been around our house since about February. Here is a list of things that we’ve had to repair since then:
- Furnace repair – $300
- Water heater repair – $700
- Chimney repair (budgeted) – $1,000
- Air conditioner repair – $900
- Lawn mower replacement – $400
BAAAAAAHHHHH!!!! That is a total of about $3,300 in repairs since February, people! And even though we actually budgeted for the chimney repair, just looking at that list gets my blood pressure up. But, you know what would’ve really frayed my nerves? Not having the money to pay for it.
Make a Plan
We are in a great financial position that allows us to keep our emergency fund fully funded without putting stress on our other savings goals. Yes, we are somewhat fortunate in that respect, and I totally understand that some of you may not be in the same position. However, it didn’t just happen by accident. Our emergency fund was stocked by design. Although you may not be able to build it up as large or replenish it as quickly as we can, you need to have a plan.
Start building your emergency fund today. Know how much you need. Keep it locked, loaded, and ready for action when you need it. Make sure you can gain easy access to it when the need arises (and it will). When you are prepared for the inevitable emergency, you’ll be able to handle it with relative ease. Yeah, it may still sting, but it won’t derail your big picture goals. You’ll pay for it and move on with your life #LikeaBoss!
Do you have an emergency fund? Have you had to use it recently? How much money do you use to fund it and where do you keep it? Join the discussion in the comments below!
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Our emergency fund is actually in a mutual fund. We have never had to touch it, for various reasons that I won’t get into now (though we have TONS of things break). It’s not the easiest to access, but we do have a credit card, so my plan would be to put the issue on the card, while working to get the withdrawal. Then I would use the cash to pay off the card right away. However, this is about to change – it’s just how we’ve been doing it 🙂
Hey, at least you’ve got something…but yeah, I’d change it. You are a lot less likely to touch money when it is invested. Plus, if it the market is down, you could lose money on it. I’d put it somewhere safe, like a savings account, and keep it there just for emergencies.
We do have an emergency fund, well over 6 months. We keep it in a standard saving account to have quick access to the money. With a recent career bump we’ve had to rely on the e-fund to pay some bills.
That is exactly why you have a e-fund…and why you keep it very liquid.
Way to go! E-funds are not sexy…until you need them! Then it feels amazing to have a financial emergency and just think “bummer, oh well”.
We have an e-fund of 6 months sitting in a savings account. Been married two years and havent had to use it once (knock on wood!). Along with our e-fund, we set up modest sinking funds that we pay each month for every potential “emergency” we could think of. Go Hoosiers!
Ha! Go Hoosiers!
Sounds like you guys are doing everything right. I’m glad you haven’t had to use yours yet, but you will…Luckily, you’ll be ready when you need it.
Bomdiggity. Love it, almost as much as I too love my emergency fund.
I love the sense of peace it gives me knowing that whatever happens – car crash, earthquake, layoff, water heater leak – I have a big emergency net to catch me before I hit the ground.
One of my friends recently quit his job to get out of a bad situation, and now they\’re having layoffs at his wife\’s company. Their emergency fund is just starting out and not nearly large enough to cover if she gets laid off also. Stressful times to be sure. Makes me glad to have my emergency fund security blanket.
Yeah man, money issues can be hugely stressful. With the e-fund, at least you have a safety net to fall back on…at least for a while. I like to keep mine at a point where we should have enough to keep us going for at least 6 months before we’d have to start digging into savings.
Ouch with the cost of those repairs! We fixed up our condo and refuse to put any more cosmetic updates to it because I feel were at the top of our neighborhood. We will only do repairs that are absolutely needed, we too need a new water heater pretty soon. But we won’t sweat it when the time comes to pay for it either because of our emergency fund.
Yup. It made me die a little inside each and every time we had a bill. But, it was all mental. My finances were fine. I hate to imagine how mentally stressful it would have been without the e-fund.
Are you sure scoring back stage passes are not an emergency? That sounds pretty good to me! 🙂
We have about 6 months in our emergency fund. In my opinion it is too low for us, but there is a method to our madness. We are throwing every penny we can at the last of our passive income investments to have that real estate owned free and clear. (Much like your plan)
Once we are on the other side of that debt snowball, our emergency fund can be loaded full in just a few months of savings.
Well, I suppose who the passes are for. 😉
Good work man! Keep it going!!!
Oh gosh that list of things is pretty terrible. You weren’t lying when you said it’s the things you don’t think about or see. Can’t stand paying for those repairs. We have a smaller emergency fund than most people but for some reason I’m pretty content with it right now. I know it’s a bad mindset, but we do have stock investments that we could sell in case of an emergency. But that would only be if we wiped out our current emergency fund.
Also, props to you for thinking of using Bombdiggity in a blog post. #SEO
DC, I have to admit, I did look up the keyword on that…just for fun 😉
Wow those costs really added up didn’t they? I’d seriously break down in tears if I had to pay that much in home repairs/replacements – but kudos to you for having a solid emergency fund! I’m trying to get mine up to 9 months worth of savings.
Thanks Anum. Both of us have had it with home repairs for the time being. However, without the e-fund, we would have been losing it. I’m sure there would have been some tears.
We just recently had to deplete our emergency fund (sob, sob) and I miss it like my daughter would miss her favorite snuggly. So we’ve implemented some good summer goals to get to build it back up again. The fact that you’ve maintained yours so well is inspiring. When we DID have ours, we liked to keep it in an online savings account (with a different bank than our online checking) that had a decent interest rate. When you go with a different bank or broker for your emergency fund, it is out of sight out of mind until you need it.
That’s a great tip Jessica! I love out of sight, out of mind solutions to saving!
I guess this blog on Why My Emergency Fund is the Bombdiggity would be really helpful and inspiring too. Great share!
I keep mine on a 6 – 9 month range also. I like the peace of mind of having an e-fund. It’s always there to help you when the “unexpected” comes. Nice post!
Thanks Marvin. 6-9 months is the sweet spot for me. It just makes me feel comfortable. I really feel that I can dig out of anything within that timeframe.
It’s true. Having an Emergency Fund lets me sleep more easily at night.
I have a question though. Since you’re actually dipping into your emergency stash rather than diverting your savings goals, how do you keep your emergency fund filled? Or do you just let interest refill it over time?
Just curious to know what your strategy is.
Well, we’re in a pretty fortunate situation where we can just cut down on other expenses, such as entertainment costs and the like, to refill the e-fund. Unless we totally wiped it out and were without income for several months, we’d still be able to hit our retirement savings. For most people, that is where I would start as well. Then and only then would I hit pause on retirement savings for a few months.
I totally agree with the emergency fund. Ours is not where I want it. Only about 2 months living expenses, but we are still building it. I always aim to have a minimum of a $1000. But we too have had to dip ours recently. One time after being hit by an uninsured drunk driver where we had to pay our deductible for collision. And the other for an ER trip. Well the one for the accident pay be paid back, it’s no guarantee though.
Our goal is to build it to 6 months but it will take time for us but it’s still worth it. It’s kept us young 20 somethings out of debt multiple times.
God for you Rachel! You are smarter than I was in my 20’s. For years, I lived right on the razor’s edge. Every time there was a problem, I went into debt to fix it. So, keep shooting for 6 months, but you’re doing great!
We keep a $1000 buffer fund for unexpected issues. Then we have a CD ladder of 6 months expenses for TRUE emergencies like job loss or medical catastrophe.
Good work Amy! You guys are rocking the stability of an e-fund. Keep it up!
The E-fund is the backbone of any financial plan, but unfortunately doesn’t get the credit it deserves. Many people lament the fact that they’re not earning money in their savings account, but that’s not the point is it? It needs to be in a stable account where you can withdraw from in a pinch.
And I recently read some crazy stat that almost 50% of Americans couldn’t cover an emergency $1,000 cost without going into debt. Insane.
That stat is insanity. There is absolutely no reason for that.
When it comes to where you keep your money, you’re exactly right. The emergency fund should not be in an investment. You need to be able to get to it. That is why you limit the amount you put into it. Whether that is $1,000 or 6 months expenses, you need to decide where you feel comfortable. Then, invest the rest.
I have an emergency fund that amounts to about 3-4 months of monthly expenses. I keep it on the lower end because I only support myself, don’t own a home, and my job (currently) is in no way up in the air. I’ve never had to use it for anything so far, but that’s okay. I know its there and it lets me relax, if something were to go wrong. Which hopefully it doesn’t 🙂
I think you’ve got exactly the right idea. Keep it where you feel comfortable but where you can still cover emergencies. Everybody’s answer is going to be different, but you can certainly scoot by with less if you are a single renter. Good work!
I am glad that I started having emergency fund six years ago. And, I can say that it can cover us for 6 months, me without source of income to depend on. I save as much as I so that I can save for my funds and invest others.
Nicely done! Thanks for the comment Jayson!
Wow, when it rains it really pours! We will go months without having any serious expenses come up. And then the Jeep needs a new transmission, the kiddo needs new shoes, the washer no longer works, and the basement floods. Emergency Funds are soon important in our household now but I’m ashamed to say we didn’t pay much attention to them in our early marriage years. Good thing we never got burned!
Honestly, I’m with you. I could have easily gotten burned much worse when I was younger. Thankfully, I didn’t. Now, I’m on a mission to teach my kids to make better choices than I did.
Ever since we locked and loaded our $30K emergency fund (about 8 months), we feel much better about life in general. We just parked it in a money market. I feel you on the repairs!
That is pretty sweet stuff Mark. $30K! Booya!
We just paid off all non-mortgage debt last week, so it’s time (because we’re following Dave Ramsey’s steps) to save up an emergency fund. I have never been a good saver, but that’s going to change : ) A timely post for me.
Awesome! Great work. Dave Ramsey is a great plan for people in debt. Get that emergency fun up and running and you’ll be in good shape.
I know my EF is important, which is why I keep putting at least a little bit toward it each month, but I like paying off debt so much more than building savings.
I keep mine in Ally… 1.25 percent right now is great compared to every other savings account.