My Emergency Fund
If you’re new to personal finance, the experts (and particularly Dave Ramsey) advocate having a savings buffer for unforeseen circumstances.
They call it an emergency fund. Dave says you should put $1000 in savings and never touch it. That’s step one. The logic is that if you don’t have a buffer in savings, then when unexpected expenses come up (and they always do) you’ll have to use credit, which got you into this mess in the first place.
I have $1000 in my emergency fund. So far, it’s saved me from making unsafe decisions based on finances. When I needed tires, and my mechanic and my dad said that driving in the rain on bald tires was a bad idea, I didn’t worry. I just paid for the tires, and knew that I’d be taking a hit from my emergency fund.
It’s also saved me from bad math.
You see, I’m really trying to get rid of that pesky student loan. And, evidently, I’m impatient. So, I’ll log in to my account, transfer $200 to the loan, then a day later see that I haven’t actually paid it. I must be dreaming, right? So I do it again.
This is great for rapid debt repayment, but not wonderful for keeping money in my account.
That’s okay — emergency fund is here to save the day!
I got out of credit card debt earlier this year and I’m never going back. So, sometimes I need to tap into my savings account in order to make everything work in a given month.
I’m not a huge fan of the phrase “emergency fund” simply because I don’t like doomsday language.
Are new tires an emergency? No.
But the nature of irregular expenses combined with regular income means that sometimes you just don’t know what is coming.
It’s tempting sometimes to completely drain my emergency fund because I’m so close to one of my goals — but then, if I run out of savings, I’m inviting an actual emergency to come my way and I want to be prepared.
Goal for my emergency fund
I would ideally like to have six (nay! twelve ) months of income in a savings account. But that’s after debts are paid.
If you win, you can put the $100 toward your emergency fund — or you can use it for a roast goose at Christmas!
Does anyone actually eat roast goose?