What would happen if you lost your job today? Or your roof starting leaking? What if your AC went out?
For most of us. Insert hashtag: PANIC MODE
But it doesn’t have to be that way.
Imagine if the cost of a life changing event like giving birth would seem like more of a hiccup rather than a financial tornado when that $4,000 hospital bill rolls in.
Having a fully funded emergency fund gives you that piece of mind when life throws you that curve ball, because it will.
So What is a Fully Funded Emergency Fund?
A fully funded emergency fund is savings that you would use if something drastic happened in your life. These emergencies typically cost more than let’s say your rainy day fund. Examples include but not limited to:
- Losing your job
- Injuring yourself causing you to be out of a job for some time
- Needing to replace a leaky roof
- Having to purchase a new HVAC system
- Totaling your vehicle, but you need a replacement
- Funeral expenses
- Medical expenses not covered by insurance
Since most people would take out a loan or put these emergencies on credit, you’ll be ahead of the game when you can dish out CASH. Not only will you have negotiating power by paying cash money, but you’ll avoid all interest charged.
How Much Should I Save?
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Knowing how much to save can vary between families. It really depends on your lifestyle. Do you live life on the edge? Do you hop from job to job? Do you participate in extreme sports? Or do you live a modest lifestyle, drive a safe car, live in a safe neighborhood and don’t venture out too much?
I’ve read financial experts say to save anywhere from 3-9 months of expenses in your savings fund. Dave Ramsey recommends 3-6 months of expenses. So, 3 months of expenses is a good place to start.
This is 3 months of EXPENSES. If you follow Dave Ramsey’s Baby Steps, the expenses will include your 4 walls (shelter, food, basic clothing, and transportation). The shelter part includes utilities to run the household so things like Mortgage, HOA, Water, Electricity, and Gas are included.
However, this is YOUR budget. If you want to include your cable, satellite, internet, or Netflix then do it. Just know that it will take longer.
*I included them in my emergency fund because I would like to continue living like I am even if something drastic happens.
Once you’ve reached 3 months worth of expenses, analyze your budget and lifestyle and determine whether or not it’s enough. If you feel you need a little more cushion, then add another month until you feel comfortable.
2 Top Places to Keep Your Fully Funded Emergency Fund
Your fully funded emergency fund could range anywhere from $6,000-$24,000. This is a pretty big hunk of change just lying around. Most people have savings accounts. But, there are 2 things I see wrong with this. One, it is too easy to access. Most traditional savings accounts are linked to checking accounts at the same bank making it super easy to tap into if your overdraft. Two, you won’t earn much interest on it. Banks earn an average of .01%, that means if you have $6,000 in there, you’ll earn $6.
You could be putting your money to better use.
You’ll want to put these savings in either a money market account or high yield savings account at a different bank.
Having trouble deciding which to chose?
Money Market Account
- Federally Insured FDIC up to $250,000
- Competitive Interest Rates
- Fair Ease of Access to funds via ATM, Debit Card, Check Writing Privileges, and Checking Account Transfers
- Usually need a minimum balance
High Yield Savings Account
- Federally Insured FDIC up to $250,000
- Competitive Interest Rates
- Usually no Check Writing Privileges, but ATM, Debit Card, and Checking Account Transfers are permitted
- No minimum balance
In conclusion, I would recommend an online High Yield Savings Account. Interest rates are slightly higher than Money Market accounts right now and don’t require a minimum balance or minimum deposit. With the option to transfer to my checking account, I don’t need check writing privileges. Also, a debit card seems pretty easy access to me. Just be careful NOT to use it. I would actually cut it and rely on the checking transfer if and only when I needed it.
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This is great! We started this with Dave Ramsey and it really turned our life around!!
Thank you Lindsay! We definitely have a better financial path by following some of his principles. Glad to meet another DR follower.
Such a good tip! I recently talked a lot about this in my book as I truly believe people don’t realize how much this will save them WHEN unexpected things happen!
Kashlee, I’d love to more about your book. That’s exciting. And yes, it amazes me how many people don’t have an emergency savings. I never had one either, especially not as big as 3 months’ worth of savings until I read Dave Ramsey’s baby steps. I was a believer from the start. Working in Trauma ICU as an RN, I see how life can quickly change and I have had friends whose lives turned upside down because of accidents. It gives me such piece of mind to know that I have something to rely on if something happens.
Great tips! We should all be planning for a rainy day! 🙂
Yes, Emeline thanks girl. It really is important when trying to get out of and avoid debt. Instead of relying on your credit card for emergencies, why not rely on your own hard earned money, right?
I never would have thought to not keep my funds just in my savings account, great advice! Thanks!
Samantha, savings accounts earn such LOW interest that it’s sad. If you are going to rack up a large savings, especially thousands of dollars, why not earn money on it without the risk? Some of the top HYSA and MMA are earning 1.65% right now which means that $5000 would earn $82 as opposed to $5 at a traditional savings account.
These are really good points. We have our money in a money market right now but the interest is pretty lame. We’re looking for different places
Hi Betsy, some money markets can be competitive right now. But, I do feel like High Yield Savings Accounts offer a little more flexibility. If you have the discipline, I think it is great. But, if you are tempted to touch the money, perhaps staying with a MMA is probably best. Some of the top institutions right now are CIT Bank, Synchrony Bank, and Capital One. I would definitely look into those and see what fits your needs.
Waow really informative and educative post. I learned so much. Funny how we take saving money for granted until the storm hits. Thank you for sharing this.
Samuel, thank you. I’m so glad you found this useful. A savings account is extremely important in your overall financial freedom. Everyone needs something to rely on. Murphy will come knocking at any point in your life and it’s best to be prepared. Having a fully funded emergency fund can definitely help in that situation.
My husband lost his job this past December, right before the holidays. I wish I read this then, but it’s still really helpful to read now.
Oh no, Kat! I hope he finds a job soon. It’s always a stressful time when something like that happens. Prayers to you and your family in that your husband finds a job swiftly and you can get started on building your fully funded emergency fund again.
Marissa Xxx