If I could use only one word to describe my thoughts on this it would be the word yes. I went the first 26 years of my life without an emergency fund and I’ll never go another day without one.
The purpose of an emergency fund is to give you available funds in case of an emergency. Your car breaks down and needs repair. You fall and break an arm and have to take some unpaid leave. Whatever the emergency is, your fund is there to see you through it. It’s a great thing, and can take an immense weight off of your mind that you didn’t even know was there.
So where do you put your emergency fund? A fluid account that you have nearly immediate access to. I prefer to have it in a secondary account that is separate from my everyday account because that makes it that much harder to spend on silly non-emergencies, but where it’s still available if I need it for an emergency. At the moment, I keep my e-fund(my pet name for it) in an Ally Bank interest checking account. The interest rate is consistently in the top 10 or so and the service has been superb.
How much do you put in it? Ideally, you’ll keep 3-6 months of expenses in your emergency savings. If you’re just starting out with your debt plan, try for something between $1000 and 1 month of expenses.
Make your emergency savings a priority. Until your reach your $1000 balance goal, you should be paying as much as you can into it. The peace of mind that you’ll get by having the account is well worth the extra interest you’ll pay on your debt while your building it.
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.