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DO YOU HAVE AN EMERGENCY FUND?

  • Writer: Treavor Dodsworth CFP®, CPA, CKA®
    Treavor Dodsworth CFP®, CPA, CKA®
  • Nov 15, 2024
  • 2 min read

One of the most fundamental building blocks of personal finance is maintaining an emergency fund. Even well laid plans will go awry. We simply do not know what is going to happen. An emergency fund allows you to weather the storm so you don't have to depend on strategies that have high fees/interest rates like credit cards or payday loans.

Do You Have An Emergency Fund?

While it is person specific, generally you will hear the target 3-6mo of living expenses thrown around for how much someone should have in an emergency fund. I personally maintain about 3months of combined lifestyle/debt but could for sure see someone doing something higher if the situation warranted it.


One thing that occasionally can confuse people is how to even calculate how much they have saved in an emergency fund. Some people will keep money in a separate high yield savings account and treat only that account as their emergency fund. This is admittedly the simplest way to think about it.


I like the approach of adding up all checking and savings and then subtracting out current credit card balances. If that amount (at the end of the month) is at least 3months (or longer if the situation warrants it) of lifestyle/debt expenses than you have an emergency fund. I like this approach because it assumes once money is spent on the credit card that it is no longer yours. Also, it it determined as of a set day (end of month) as opposed to just cherry picking the day after pay day.


While there can be some different opinions in what exactly the amount should be and/or how exactly to calculate if you have an emergency fund, that doesn't change the underlying principle- maintain an emergency fund.









 
 

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