Step three is where I’m at – building an emergency fund.
In life, there are always things that pop up that we’re not expecting, but the beauty is that we can often actually be prepared. An emergency fund is just one way to be prepared financially.
Now, let’s be clear… A new pair of shoes or jeans because The Iconic have them on sale is not an emergency. I repeat, it is not an emergency!
For me, an emergency would be if your car needs something done to it that you weren’t expecting, or if you need urgent medical or dental attention that you haven’t had time to budget for. I would even use my emergency fund as a way to make sure all of my bills were paid should something happen to my employment status.
Some financial advisors suggest that you should have 3-6 months of expenses in your emergency fund, and if you’re self-employed maybe a little more. I think that once you know how much it costs you to live (like we sorted out in step two), then from there you’ll be able to gauge how much you’ll need in your fund.
I’m only at the start of saving for our emergency fund and because of everything else we have going on at the moment (wedding and house building), I’ve just set us small goals so that we can still be building our fund while taking into account our other financial commitments at the moment. Although you might want $5,000 as a minimum for your fund, it can be a bit overwhelming at the start of that savings journey so start with a smaller goal and timeframe and then keep going from there. I always find that once I hit $1000 in any savings goal, I am so much more determined to keep that growing than if I only had $500 saved (don’t ask me why, it’s just a weird way I think, haha).
So my thoughts on building an emergency fund…
- Be disciplined as to what your emergency fund is actually for
- Be realistic about what it would cost you to live for 3-6 months and how much excess you’d want for any medical or other emergencies
- Be realistic about the timeframe you can save your desired amount in – you don’t want to stress yourself with your goal
- Push to get $1000 saved, and then let the momentum you’ve built saving towards that keep you going to get you to your overall target
I’ll keep you posted on how I’m going with building my emergency fund and I’d love to hear from you too.