Emergency Fund - Have You Got One?

Have you ever been caught off guard and been surprised by an unexpected cash emergency? I have, and it took me a while to realise that phrase “It will never happen to me” is so false.

What is an emergency fund? Basically money saved for that moment when something goes boom and you need to pay for a repair or replacement ASAP, or a family member is sick and you need to buy an airline ticket. These funds should be easily accessible and ready to use.

You don’t need to only have 1 emergency fund; I have 2 at the moment. One is for in case I lose my job and need to cover expenses; I am trying to save up at least 3 months’ worth of expenses in my salary fund. I have put this money into a call account that requires a month’s notice to release all or part of my funds. My reasons are:

1.       I don’t want to be tempted to dip into these funds unless absolutely necessary e.g. job loss

2.       I can setup a “pay day” payment that pays a portion out each month, like if I still received a salary.

3.       The interest earned is compounded monthly to help raise the balance.

I do however have another account that I use for immediate access if need be. This could cover insurance excess payments, or a burst water heater/geyser. These funds are not for holidays or X-Box games.

My ideas that an emergency fund could be used for are:

Job loss, expensive car repairs, medical emergencies (if you got no health benefits), funerals, plane ticket if a family member needs your assistance and lives far away etc.

But as the balance of your fund grows don’t be tempted to dip into it for something you think might be an emergency but actually isn’t.

If you already have an emergency fund that’s brilliant, the vast majority of people always say. We`ll be ok, I’ll start it next month. Or we can use the credit card for anything that crops up. My personal goal of becoming a Wealth Titan is to avoid using credit cards and always having the cash to pay for items that I want or need. I still got debt to pay off and we getting there slowly but surely, but I am relieved that I started my emergency fund a little sooner than later.

Also remember that if you have no or little debt, your emergency salary funds don’t need to be as high or you could stretch it out for longer periods while looking for new employment. Also with little or no debt you would probably have additional money each month to spend / save / invest as you deem necessary.

Please comment if you have a different method of dealing with unexpected expenses.