“You need an emergency fund”. We’ve all heard it at some point. It’s true. As a wealth coach I have seen how having or not having an emergency fund can impact your financial journey.

While most things in personal finance are personal, the Emergency Fund is not one of those cases.

Everyone needs an emergency fund. Everyone.

Why you need an emergency fund.

Jack and Diane had thousands of dollars in real estate and retirement accounts. One day they were faced with a financial challenge that required immediate access to cash. They did not have access to cash. They were in an unenviable position. Jack and Diane had to make a decision. Withdraw from their retirement accounts, sell their investments or some of their real estate.

The missing piece was an emergency fund.

An emergency fund is your personal security net.

What goes into the emergency fund.

What are your monthly expenses? Your budget should capture the regular recurring expenses for your household.

A good budget is the foundation of an emergency plan.

Make note of your essential and non-essential expenses. Essential expenses support our basic needs, food, housing, utilities. Non-essential expenses go beyond the basics. They are usually comforts – streaming services, dining out, piano lessons (unless you are an aspiring professional).

How much to save

Experts recommend setting aside 3 – 6 months of living expenses for emergencies.

In a one-income household, I strongly recommend saving at least 6 months of living expenses. I also recommend 6 months if you have a hard to replace job.

In a two-income household, depending on your financial situation, you can save 3 months of living expenses.

Aim to cover 100% of your expenses. That’s not always possible. The most important step is starting. Progress is more important that perfection. It’s better to have a $1,000 for emergencies than nothing.

Where to keep the money

Stick to easy to low risk easy to access accounts. This is not the time to put your money in creative or high risk investments. Instead, you want to set this aside in a savings account. We want to focus preserving the value. Consider a traditional savings account, high yield savings or money market account. These are low risk and accessible while still providing modest growth.

When and when not to use your emergency fund

It’s not just for a crisis, like a job loss. Your emergency fund can be a life line in other scenarios – medical bills, emergency home repairs. Maybe your HVAC breaks in the middle of July – been there! It’s almost impossible to plan for all of life’s scenarios. Give yourself permission to tap into emergency fund for some of life’s unexpected happenings. Remember that you can and should keep replenishing the fund. It’s not a one and done.

Don’t dip into it for everyday expenses. Dinner out on the weekend or your favorite artist on tour don’t count as emergencies.

How to build your emergency fund.

I’ve found that one of the most overlooked aspects of the emergency fund conversation is discussing how to build your emergency fund.

Your emergency should be a line item on your budget. Set aside a fixed amount of money each month to building the fund. Here are some strategies that I’ve helped my clients use:

• Automate transfers to a savings account
• Use a Bonus or commission to kick start your fund
• Pause non-essential spending and redirect to your emergency fund

Start where you can and work towards your goal.

Be sure to set up your emergency fund before investing or buying a home.

You’ll have piece of mind knowing that you have a cushion in times of an emergency.

Need help setting up your personal safety net? Set up a consultation with me to get started.