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Establishing Your Emergency Fund

Our first step to getting our financial act together was to establish our emergency fund. We had no intention of fully funding it before we paid off our debt, but we knew that we needed a little bit of a cushion between us and life so that we could avoid going further into debt as we paid off what we already had.

Setting up a Starter Emergency Fund

Emergency Fund

Why should I have money in the bank when I’m trying to pay off debt?

Having money set aside in the bank will allow you the chance to continue to work towards your financial goals in case the unforeseen happens. Money in the bank takes the stress away if you face an unexpected car repair or medical expense. You’ll feel relief knowing that you are prepared for a little bit of life to happen while you continue to pay off your debt.

Where should I keep my emergency fund?

You want to make sure that your emergency fund is accessible without being too accessible, that way a take out pizza or a new pair of shoes don’t become an “emergency”. We have ours in a savings account that is accessible online but not with my debit card. Within 24 hours I can have the money transferred to my checking account if an emergency was to occur.

emergency fund

How much should I have set aside?

Keep in mind that your starter emergency fund is not your fully funded emergency fund. While you’re focused on getting out of debt, you want to set aside an amount that would cover most minor emergencies. For our family of four, that meant having $1000 set aside. You may not need that much if you’re single with fewer expenses, while some might feel comfortable with having $2000 or $3000 in savings.

When should I start my emergency fund? garage sale

As soon as you possible, you can never be too prepared. If you already have savings in the bank, it’s as simple as earmarking that money as your emergency savings. No money? No problem. It’s time to look around the house and start selling stuff online or gather up your goods and plan a garage sale. Perhaps you can pick up some extra hours at work or pick up some extra work. Don’t forget to take a look at that budget and see where you can squeeze to save up the money.

With any luck you won’t need to use your emergency fund, but what a feeling of relief it is to know that if life does happen, you’ll feel be for it. Your emergency fund, although just a starter one for now, will bring your one step closer to building your own personal freedom.

 

Your Turn!

  • What does financial freedom mean to you?

 

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