Having an emergency fund is one of the best things you can do for your finances. This is why Dave Ramsey’s popular money management system starts off with having individuals save $1,000 for an emergency fund. An emergency fund gives you some extra breathing room when it comes to unexpected expenses.
Without an emergency fund, it seems as if your budget is hit by bad karma constantly. When my husband and I first got married, we were living paycheck to paycheck. It seemed like we couldn’t catch a break financially to add money to our savings. Every month felt like there was a mini-emergency, such as getting the car fixed or paying an unexpected tax.
However, once I pushed to have $1,000 in our savings account, it seemed as if the unexpected expenses slowed down, too. Over four years later, we have thankfully never had to deplete our emergency fund.
We have had plenty of unexpected expenses, such as a $400 for a garage repair, $450 appraisal fee, etc. However, knowing that we had $1,000 in our savings account made these fees less stressful, and in the end, we ended up being able to pay for them by adjusting our budget for the month.
If you are new to getting your finances in order, establishing an emergency fund should be the first goal you set and accomplish. It’s worth it – trust me. Here are some different action steps you can take to get the right emergency fund set up for yourself this year.
Start By Saving $1,000
This is Dave Ramsey’s first baby step to becoming financially independent, and it’s a good one. No matter where you are in your financial journey, or what your salary is, make saving $1,000 for an emergency fund a goal.
You’ll also want this money to be in a separate bank account that’s not in any way connected to your regular one. The money should be hard to reach this way you’re not tempted to spend it, but still easy enough to get to in the case of an emergency. For example, you shouldn’t put your money in a CD or money market account.
Really push yourself to get $1,000 into your savings account. Getting to $1,000 is like pulling off a band aid: it’s painful at first, but once it’s done, you are thankful you did it.
Figure Out How Much More to Put Into Your Emergency Fund
While $1,000 is a great goal for everyone to reach, you shouldn’t stop there. The next important goal to have is to expand your emergency savings to include 3-6 months of your living expenses.
This emergency fund will cover you if there is a job loss, a job disability, or an unexpected medical expense. Again, this money shouldn’t be too easy to access and shouldn’t be spent on things you should save for, such as a car. This money is to be used for real financial emergencies.
How to Build Up Your Emergency Fund Effortlessly
Once you determine how much money you want to have in your emergency fund, then determine when you want to accomplish this goal. For example, if you want to save $10,000 in your emergency fund by December, then you will need to come up with an extra $833 a month to save.
If you don’t have an emergency fund at all, then this year, funding a $1,000 emergency fund is a must. Once you have $1,000 in your emergency fund, continue to funnel savings into it. Figure out how much more your emergency fund needs and keep adding money to it monthly.
Do you have an emergency fund? How did you determine how much to save in it? How did you get started?