So, how do emergency funds keep fun goals on track? If you don’t have that emergency fund set aside when the emergency happens, the money you end up using is what would have been used for things like vacation, planned home improvements, a new/new used car, holidays and birthdays, education, or other goals that help move you and your family forward financially.
I know you may often hear an emergency fund should be 6-9 months of expenses, but realistically, most people are doing well to have $500 or $1000 in an account earmarked for emergencies. So, getting past a month, two months or even three months of expenses may be unrealistic for some – at least for the immediate future. Whatever the amount, it is better to have emergency money earmarked in a separate account, not mixed together with your regular checking or savings account.
A great approach to saving for emergencies is to make savings automatic every month into a “liquid” account (savings account or money market). Check to see if your employer offers the option of direct deposit into a second/ separate account, or if not, setup a system to have your bank or credit union move the money to that earmarked account on the same date every month. Making it automatic means you don’t have to think about it every month – it just happens. Then that money is available for the unexpected.
Start small so the idea of saving for an emergency is less intimidating. Focus on working up to one month of expenses (if not there yet), and when and if you get there before an emergency happens, then start to work towards saving two months of expenses, then three months, etc.
When that emergency happens, and it will (I have yet to have a year where it doesn’t), you take what you need and start to rebuild by keeping your automatic savings plan going. Another idea to help you build or rebuild emergency savings is to use part of your tax refund or any other windfall you might get during the year to give it a bump up. Remember – financial success is all about setting and reaching your goals; some are just more fun than others. Keep your fun goals on track by having an emergency fund to come to the rescue.