“My job is steady and I’m healthy. I don’t have much to worry about, so why sock up six months worth of savings?”
That’s great. Until it’s not. Lots of people in “safe” jobs were laid off after the 2008 financial crisis. Even if your job is secure, your spouse’s might not be. And work may not be an issue at all: if a hurricane strikes your town and you won’t get your homeowners insurance check for another few weeks or if you get hit by a bus and can’t work for several months, you’ll never kick yourself for having extra savings at your disposal.
Your emergency fund is exactly that- a “break open in case of emergency” cash stash. There’s no hard number for your emergency fund, but socking away 6 months worth of expenses (like rent, for instance, not weekly happy hour dates or new clothes) is a good rule of thumb. That cash cushion could be several thousand dollars and you won’t build it overnight. If you don’t have an emergency fund yet, don’t kick yourself for not starting one sooner- be realistic about how you’ll grow those funds and commit to saving a set amount every month.
Automate withdrawals from your checking to a designated emergency savings account and you won’t be tempted to use that cash for, let’s say your shoe fund or comic book fund. If you can, use a separate online bank or a money market account- your funds are safe from impulse purchases and your interest rates will be slightly higher. Win-win, if you ask us.
Photo: 401(k) 2012