Day 22: The Emergency Fund
A brief history of my Emergency Fund –
Before I decided to get out of debt, I did not have an emergency fund. I lived “paycheck-to-paycheck” and if things got “tight” at the end of the month, I would whip out the old credit card and “solve that month’s money problem”. Of course, all that I was doing was pushing one month’s problem into the next month, and so on and so on.
When I finally decided to get my financial house in order, the first thing I did was establish a mini-emergency fund. I sold things on eBay, I had a yard sale, and I started living on a strict budget. Very quickly, I was able to put $1000 into my savings account. (Click here and here to read about times when I had to dip into my emergency fund.)
After getting out of debt, my next goal was to build up a big-time emergency fund. I wanted enough money in my fund so that if my wife or I lost our job, our family would be taken care of and neither of us would have to rush out and take a job that we didn’t enjoy. After some consideration, I settled on the nice round amount of $20,000. I spent the next several months piling up cash and putting it into savings. I never really considered interest rates. My goal was to a have a readily available cash supply, set aside for a true emergency.
Now that I am maxing out my retirement contributions and education savings account contributions, my emergency fund is just “sitting” in my savings account, earning interest. I don’t really worry about how much interest it makes, because this money is not to be used for investing or spending. Nope. The money in my emergency fund is for – you guessed it – emergencies!
I also have a small amount of cash in non-retirement, long-term savings. I have divided this amount between a standard brokerage account and my online savings account. Each year, after I max-out my retirement and education savings contributions, I will then pile up as much cash as I can in my brokerage account and my savings account. This money will be used for future “major purchases” – cars, furniture, etc. My super-long-term goal is to buy a house – with cash!
Leave a comment about the security of having “an emergency fund”.