An Emergency Fund gives me freedom by reducing my Risk. When I haven't enjoyed my job, wanted to move geographically or just needed a break, my emergency funds has been that buffer between me and the "s" word, stress. Here are six suggestions to get you going.
Where do I start? The size of your Emergency fund will vary and depending on your job security. The average time a worker stays unemployed in the USA is 25 weeks according to statista.com. If you want to build and Emergency Fund, keep it simple. First aim for a month, you can work up to statistics 6 month mark.
What if my work is very unpredictable. If your work is less stable, you add a few more months for additional peace of mind.
How do you calculate the amount of your Emergency fund? Add up all of your monthly expenses, remove luxuries, and multiply that total by the number of months you choose.
How do I enforce it? Set it up as a Goal and have it where you manage your money each week.
Where should I hold it? By nature, Emergency funds need to be held so that they can be readily available but not be easily accessible. A bank account which is not accessible by ATM card or transfer can be considered.
What asset class can I hold it in? An Emergency fund needs to ben held in a form that is no to low risk ie. cash in a secure environment (insured bank) or government security of a financially secure government.
Emergency funds should be your first savings goal.
Prepare for the worst, hope for the best.
For the AfireFi community, an emergency savings goal will be automatically triggered once you enter expenses and you will be presented with graphics to help stay on track..