Are you ready for a big emergency? Do you have the required 6 to 12 months’ emergency fund?
I can hear your groan now. Who has enough extra money to put aside 6 to 12 months in the bank? If you have expenses of $3,000 a month, an ample emergency fund of 6 to 12 months would be $18,000 to $36,000. Definitely not small change.
An emergency fund is hard to build, and that may be part of the reason why many people never even try.
But there will be an emergency that will occur sometime in your life. You will need that money.
Financial Death by a Thousand Nicks
We relocated to Arizona 10 months ago. Doing so drained our meager emergency fund. For a few months, we were doing pretty good and getting back on our feet until we started facing endless financial nicks—braces for our son, $2,000 in medical and dental expenses, $1,500 in car repairs, etc. The last five months have been financially very difficult.
If we would have had a 6 to 12 month emergency fund, our job now would be to rebuild the emergency fund, not do constant damage control. I think it will be a few more months until we are financially in the clear, assuming no other major expenses come up. Meanwhile, we feel extremely vulnerable financially.
The Big Emergency Worst Case Scenario
However, our current financial difficulties are nothing compared to what others face. My daughters’ therapist is living a financial nightmare. Her husband had a stroke and now has locked in syndrome, which means he has his full mental faculties, but he can’t move his body. He is no older than 40. No one would expect this to happen.
The therapist’s life now is driving to see her husband and advocate for him as well as juggling the finances of losing one income as well as the rapidly mounting medical expenses. She does work but has had to take frequent days off. Even with a Go Fund Me page that brought her nearly $50,000 in donations, I have no idea how she is handling the expenses.
Of course, this is a worst case scenario, but still, an emergency fund to liquidate in this situation would be nice.
Take Baby Steps to Reach Your Goal
Right now, my husband and I are struggling to stay out of debt. So far we’ve succeeded, but we’re right on the edge. Still, our plan is to put a small amount away in our emergency fund, say $50 a month. Something is always better than nothing.
In the next few months, we’ll amp that amount up to a couple of hundred a month and keep increasing as we are able. We won’t have a sizeable emergency fund anytime soon, but we will have some money put aside.
Too often, it’s easy to look at your finances when everything is going right and say to yourself, “We’re doing alright. I can afford to splurge.”
But that’s short-sighted thinking. Look at your finances and ask yourself how would you be financially if you had several smaller emergencies of a few hundred or thousand dollars or if the worst case scenario happened?
My advice is to wait to splurge until you have that emergency fund. Trust me, one day you’ll be glad.
Do you have a 6 to 12 month emergency fund, or do you find it too difficult to achieve?
Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.
We definitely maintain a 6 month emergency fund. Ideally, I’d like it to be a year, but we have additional resources we can liquidate if absolutely necessary for an extended problem.
Having been without one in my 20s and how painful it was, I’ve learned my lesson and hopefully will never be in that bind again. But accidents happen, and you never know when you’re going to need it, but you will need it, so best to have it ready.
It certainly makes it easier to sleep at night.
Kevin Shryock says
Hey Melissa, nice article. I totally agree that you need an emergency fund (as does Dave Ramsey, Mint.com and pretty much everyone else). Life happens and you need to be ready.
12 months seems a little steep though. I recommend 3-6 and then encourage cash savings for large expenses. That way, if a financial whammy hits, you just postpone the big purchases. No damage done. Then, after you’ve built up your investments, you have the ability to pay for large expenses without even tapping into the emergency fund.
Still, your advice is solid. Whether it’s 3, 6 or 12 months of expenses, too many people don’t have it.
Nate M. says
We have about four months worth of savings now. We’ve taken baby steps but this year and last year we put all our tax return money into our emergency fund. It’s gotten harder and harder for us to maintain adding money to it with the pay cuts I’ve gotten. We will get there one day….hopefully sooner rather than later.