Do You Have an Emergency Fund?
April 23, 2009 by Miranda Marquit
Filed under Finance
The post on Bible Money Matters today got me thinking: In these tough economic times, it is no surprise that many people are starting to wonder about an emergency fund. It is a good idea to have an 
emergency fund, since it helps you prepare for the unexpected. Indeed, an emergency fund can help you avoid total financial chaos in the event that a large, unfortunate and expensive event happens in your life.
What an emergency fund isn’t
Many people make the mistake of thinking that credit cards are an emergency fund. I have a credit card that I take along with me for “just in case” moments while traveling, but I don’t think of it as an emergency fund. Credit cards are a loan. Trying to set them up as emergency funding is just asking for trouble, since you will have to pay interest on the money you use. Credit cards aren’t an emergency fund; they actually increase your chances of big financial problems.
What an emergency fund is
An emergency fund is a well of cash that you can dip into when an emergency comes up. It is money that you can use to tie you over if you lose your job, or that you can use to make unexpected car repairs. It’s also money that you can use to pay deductibles on insurance policies should the need arise. It’s a fund that is there, waiting to be called into action. Many experts agree that $1,000 is a good start for an emergency fund, and that you should keep adding to it regularly until you have around six months (or more) of expenses saved up. For best results, your emergency fund should be:
- In an interest bearing account so that the money compounds as it sits there.
- Fairly liquid so that you can access it when you need it (access within two or three days).
- Not so liquid that you are tempted to use the money to buy big ticket items that you don’t really need.
I keep my emergency fund in a high-yield savings account. It requires a bit of transferring, and it takes two days to get my money. That keeps it out of my immediate reach, allowing me time to determine whether I really have an emergency on my hands, while still ensuring that the money is available to me in a timely fashion.
Do you have an emergency fund? Where do you keep it?
image source: sxc.hu
Being self-employed, I keep a big fat emergency fund in a savings account at ING. Don’t think I could sleep at night without it.
My emergency fund is in a high yield savings account. 6 months of expenses!
I do have an emergency fund. I keep it in an accessible savings account.
My emergency fund is at an online bank savings account.
I have $1,000 in an ING savings account. Right now, I’m focused on paying off my credit card, so I’m adding to my regular savings (I have two regular savings accounts that I transfer money to weekly — one attached to my checking, and the other with ING as well). I have a stable job, so I’ll start saving more toward my emergency fund once my credit card is paid off in June!
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Thanks for sharing! It looks as though the high yield savings account wins out! :)
I have $100K in the fallout shelter right beside my gold, guns and groceries. I’m ready for anything. Just kidding about the fallout shelter. It’s in an ultra short term bond fund with check writing privileges if an emergency every arises.