- Why have an emergency fund?
- How much?
- How to get there
Why have an emergency fund?
It’s a sefety net for those unexpected events in life that we don’t have money already budgeted for. It’s an account set aside from your regular budget to cover big expenses that you weren’t planning on paying.
Mitchells have had to use their 3-6 month emergency fund three different times. Once when Dave was working for a small start up company and the company didn’t have enough money to pay their employees for awhile. Another time Dave was working for his family’s business and again they were not receiving enough money to pay the family mambers in the business, and a third time Dave was without a job.
As soon as the Mitchells had a regular income again their first priority was building that emergency fund back up.
How much do you need?
There are two different kinds: short term emergency fund and long term emergency fund.
Short term emergency fund should be around $1,000. This helps you avoid going into debt for necessary but unexpected events.
This could cover expenses such as an unexpected car repair, a plane ticket to a family member’s funeral, or unexpected medical bills.
Long term emergency funds should be 3-6 months of your living expenses. It could be more or less depending on your circumstances.
These funds provide peace of mind. It supports the idea of “If you are prepared, you need not fear.”
How do you get these funds built up?
According to Dave Ramsey’s Financial Peace University, the first three steps are to:
Get $1000 saved up
Build up you 3-6 month emergency fund
To build that up, look at your spending and see what is a need and what is a want. Try to slim down the expenses that are just wants.
Start selling stuff. Look around your house and see what you could sell at a yard sale, Craigslist, local classifieds, indoor yard sale sites. All that money goes towards paying off debt and building up that emergency fund.
Look for more ways to bring in income. Get a second job like selling pizzas, drive for Uber, work from home, freelance jobs.
Websites that can help find jobs include Cragislist, HireMe.com, and upwork,com. If you can sell products you produce, look for websites like Etsy to sell crafts or Gumroad to sell your writing. Stay-at-home moms can watch other kids, do book keeping for a business, or run a preschool.
Look at your talents and see what you can do to earn a little bit more money.
Mitchells want to stress how they have been blessed by having this fund in place and the peace of mind it gave them when faced without an income. They never planned to be in a situation where they needed it, but they were always glad they had it when they needed it.
Several years ago Mitchells had quite a bit of debt, but after taking Dave Ramsey’s class, they buckled down and paid off all their debt and built up their emergency fund. Shortly after they had to use it. They talk about the peace of mind they felt heading into those months of no income having no debt but having a cushion of money to live off of. That peace was much different compared to the fear and uncertainty they would have felt going into that same situation with lots of debt and no extra money.
Their emergency fund has been a blessing.
The picture above is titled ‘3d Emergency Fund’ by StockMonkeys.com and can be found on http://www.stockmonkeys.com