Money Mondays - ep 5
I do not think I have fully appreciated the concept of an Emergency Fund until now. It’s been 2 months since I’ve brought home any income due to my little Worker’s Comp situation and my goodness a healthy emergency fund would have helped us tremendously!
Most of those financial experts Google will refer you to suggest 3-6 months of living expenses stashed somewhere. Now, as a relatively average American, YEAH RIGHT! I’m already on a tight enough budget and now you want me to manage to save up to half of our annual income to be stashed for a future emergency when we’re trying to scrape by as it is?!
In an effort to live in reality, I decided to reevaluate that 3-6 months worth of expenses. A bit over one month’s expenses - about $3,000 - seemed much more reasonable to me. It’s enough to cover our butts if something bad happens, but not so much as to cause problems in trying to build it up.
Since we’re already making a drastic move to reduce our expenses, I figured I’d take advantage of that time frame. The lease we’re signing with my mother is 9 months long and so will the time-frame I’m placing on setting up that $3,000 Emergency Fund. That equals a need of $333.33 a month into savings, which is a lot. But with the amount of money we’re saving from living with my mother and the fact that Justin’s income will be going up in a month or so, it’s a very reasonable amount for us even while we’re working to reduce our debt.
Another note that might be of some interest: we’re not putting it in a regular savings account. We belong to a credit union whose money market interest rate is a palsy 1.25% APY. C’mon! Instead, we’re investing it in a high yield savings account through ING Direct which clocks in a much more generous 4.5% APY. Even though you’re planning for a liquid asset in your emergency fund, make sure to take advantage of a higher-interest yield so your money continues to work for you.
Make sure to check out next week’s Money Monday which will be about the amortization process of debt reduction.
Happy debt reduction!
June 8th, 2007 at 11:42 am
How’s the leg? Hope it’s better. If you lived in Seattle I’m sure you’d be seeing an acupuncturist or a Chinese herbal medicine doctor. I know several, though I’ve never actually taken a treatment. But my comment is about emergency funds. I did a post on them not long ago http://www.extramayo.org/NewsBlog_Archive/1758.htm
which might be of some interest.
June 11th, 2007 at 5:05 am
[...] Mercurial Scribe writes about the need for an Emergency Fund. Two reasons to like this post. One, it’s about finance. Two, it’s about PERSONAL [...]