The Starter Emergency Fund

Starter Emergency FundOkay, so not everybody out there has an emergency fund…it’s just reality. Sure most people would agree that keeping money set aside in case of emergency is a wise idea.

But not everybody has the money or interest needed to have a fully funded emergency fund.

How much do you need for a fully funded emergency fund? That depends on your finances, goals, values, comfort level and many other things.

The size of your emergency fund can only be decided by you. How prepared for emergencies do you want to be? How much money do you want to keep sitting around?

My emergency fund goals:

$500 1st goal (achieved)

$1,000 2nd goal (achieved)

$2,000 3rd goal (achieved)

$3,000 4th goal

$4,000 5th goal

$5,000 6th goal

Honestly, I’m not too interested in keeping any more than $5,000 in a savings account for our emergency fund. Granted I have an awesome savings account with very generous interest compared to most other banks.

But I know that I could anything over $5,000 to make us more money. I could put it in an investment account and earn much better returns.

Does that mean that you shouldn’t save more than $5,000 in your emergency fund? Of course not! Some people would much rather keep that money in a nice secure savings account than risk losing it in the stock market or other investments.

Also, for us, $5,000 is close to 2 months worth of income. If you’re income is substantially more, then it won’t stretch as far. The same goes for if your income is less, $5,000 could be numerous months of income for you.

If we lose our main source of income (such as getting laid off), then our emergency fund (at it’s max of 5k) will only provide us with 2 months worth of income. We could probably stretch it to as many as 3 or 4 months, but we’re already so close now that it would be very, very painful to do so.

My suggestion, if you don’t currently have an emergency fund is to start small. Realistically, could you save up $500 over the next 6 months for your starter emergency fund? If not, then how about $100?

Starting small is better than never starting at all. Plus, you’re going to be very happy you did the next time an emergency comes up. :-)

Do you have an emergency fund? Why or why not?

What was your 1st emergency fund goal?


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The Starter Emergency Fund — 7 Comments

  1. Thanks so much for submitting this article to this week’s Festival of Frugality. I agree though. A $5,000+ emergency fund can seem like a very daunting figure at first, so it’s a good idea to break it down in to smaller goals.

    It’s also an interesting decision to figure out at what level of emergency fund build up you start to pay off debt (if someone has it)
    Jacob @ My Personal Finance Journey recently posted..Festival of Frugality # 378 – March 5th, 2013 Daylight Savings Celebration EditionMy Profile

  2. The usual rule of thumb is 6 months worth of income but that is hard for most people. Your idea to start small is the best way to go to get stared and get momentum on your side. Nice post!

  3. I think your last line sums it up pretty nicely: Starting off small is better than not starting at all.

    All too often, I feel like the chore of starting and keeping an emergency fund is just too much for some families. When you hear you need 6 months worth of income and you make $60K, that means you need a ridiculous $30K in the fund! Who’s going to do that?

    I’d rather see people keep $5K or more in case of a disaster. And if you really want to be safe, keep more in a place that is relatively liquid and earning more than inflation, but not ultra stale (like a savings account).
    MMD @ IRA vs 401k Central recently posted..Getting to Know the 401k Rules of Your Employer Retirement PlanMy Profile

    • Exactly. If I would have had a goal of 6 months worth of expenses, I never would have ended up saving anything. Too overwhelming.

      It does seem kind of silly to tie up so much money in a savings account when you could grow it, but some people feel more comfortable doing it.
      Jen Perkins recently posted..Financial Carnival For Young AdultsMy Profile

  4. Comfort level is definitely a huge aspect to emergency funds. Personally, I’d like to save up a years worth of expenses, which would be about $16,000. As I have a whopping $2,000 in there right now, I have a ways to go. I also tapped it recently to be able to move to a new area to take a higher paying job. My boyfriend and I always disagree about the amount that needs to be in there – he thinks $5,000 is plenty and more than that is a waste, but I think for the peace of mind it would be bring me, it’s worth it.
    Mel @ brokeGIRLrich recently posted..From Student Activities to Graduate Admissions AdvisorMy Profile