Happy Friday DINKS! Let me ask you, a question. When you get your pay check do you save your money, or do you spend it? If you save your money let me ask you…what are you saving for? One of your financial goals may be to build up your emergency fund, also known as your Rainy Day Savings account.
There is a standard financial rule that everyone needs to have the equivalent of 3 months (after tax) salary in their rainy day savings account in case of an emergency. An emergency fund depends on our individual financial goals. I believe that the management of our emergency fund may be more important than the actual amount of savings in our emergency fund.
How do you manage your Emergency Fund?
If you need to dip into your emergency savings, how do you replenish it? How do you invest the money in your emergency fund? Do you invest it, or is your emergency fund all cash? Is your emergency fund hidden in the cookie jar on your kitchen counter? Do you sleep on top of your emergency fund every night? Here are some posts about our Emergency Fund from around the web:
- Fabulously Broke asks What are your Emergency Fund rules?
- Dave at 50 Plus Finance tells us How He Spent His Emergency Fund.
- J. Money at Budgets Are Sexy boasts that we Should Be Proud of our Emergency Fund.
- Financial Samurai discusses the difference between regular savings and emergency savings in his post The Emergency Fund Fallacy.
(Photo By Vipeldo)
When we were both employed, a three-month cushion of actual living expenses was enough. As soon as DH was laid off, we took some of the money we were saving to renovate the house and made the emergency fund a six-month cushion of actual living expenses. This is in an ING account. We also have a few hundred dollars in cash in the house in case we can’t access ATMs or online accounts. Both “emergency funds” are truly for an unplanned, large expense (roof caves in, major hospitalization, neither of us have a job).
The rest of our non-retirement savings is earmarked for projects or a future planned purchase (renovation, car, vacation, etc), but it is also our backup emergency fund.
My husband and I spent most of 2010 trying to get our emergency fund up to the 6-month mark, and as luck would have it, we accomplished that goal at the very end of the year.
Right now, 2/3 of that money is sitting in regular savings at our credit union, earning nothing. The other third is in a “high-interest” savings account with an online bank, and earns about $6/month. I NEED to transfer the other 2/3 over there, but haven’t gotten around to it yet.
Now that we’ve fully funded our emergency savings account, we’re saving for other things: A replacement car for when one of the two we currently have bites the dust. I very much want to pay cash for our next car (never want to finance again!), so that’s a major goal. We’re also saving for some landscaping we’d like to have done on our house, travel (going to Europe in April!), and home-improvement projects.
Having an emergency fund, or any type of savings is always a good financial planning strategy. We never know what life can bring, so it’s always good to be prepared…just in case.
@ ED What happens to your cash at home if your house burns down or you get robbed? How will you claim the cash on your insurance to recuperate the loss?
@ Alotta Lettuce I love that you deal with a credit union! Where are you going in Europe? I’m planning on going to Portugal in September.
At the moment I have a 1 month emergency fund. It’s not where I’d like to be. The six month mark would be preferable. I don’t think I’ll be there for some time.
My emergency fund is in a safe low interest savings account at my local bank and I feel comfortable with that, nothing fancy. I sleep better knowing I have that money. I would like to increase the amount to two months income but at the moment I have more bills than income. The emergency fund will have to be patient and wait for more money in a few months.
Thanks Kristina for including my post. I enjoy your writing and perspective.
Fortunately last year I completed my emergency fund, its only three months of expenses but Im ok about that since I am single and I have a job but in case I lose it I have freelance income too and insurance in case of desease. Right now I continue saving for two purposes:
1. Down payment (3.6% of goal reached)
2. Travel (16.7% of goal reached)
Thanks so much for linking to my post :) I always say “rules” but even my rules change as my feelings change.
I just like knowing I have a wad of cash there of at least $30,000 or so just to tide me over. Then it’s just a matter of watching my expenses to make sure I’m able to make it last as long as possible