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Your Emergency Fund: Is $1,000 Really Enough?

March 17, 2020
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Having an emergency fund is crucial on your financial journey and in life. But, is the $1,000 emergency fund enough to protect your family or should you have more?

After I had my son, I considered all of life’s potential twists and turns. It became clear to me that I would never feel 100% comfortable with only $1,000 in my emergency savings. With the challenges of being a single mom, I knew that amount for an emergency simply would not suffice. Fixing life’s problems can be expensive, and not having the money to do so consumed me with worry, and I couldn’t sleep.

While having $1,000 set aside for emergencies is certainly better than nothing, it is often not enough to cover many of the crises people face today. As I have mentioned before, things, like replacing tires or paying for a significant medical emergency, are realities I want to be prepared for — so increasing my emergency fund was the right thing to do.

For my peace of mind, I decided I needed at least $5,000 in my emergency fund. It was worth everything it took to make it happen. By increasing the amount for life’s unforeseen events, I no longer lost sleep worrying if I would be able to take care of my son if something happened.

Having a safety net is critical on your financial journey, and in life. It's all apart of Step #2 in my Financial Freedom Steps.

●    Read: The Budget Mom’s 9 Steps to Financial Freedom

Do you really need an emergency fund?

An emergency fund is absolutely critical for everyone interested in being prepared for life, after all, it is filled with so many things that we never plan for. My emergency fund brought me peace of mind, something that is priceless. I know a lot of people advise starting with $500 to $1,000, but for me, I found it lacking.

A visit to the dentist’s office can run $600 to $1,200. Tires can easily set you back $600-$700. What happens if you need a new water heater? It can run $400 to $900. So, can you see how easy it is to wipe out an emergency fund? I wanted the added security and was willing to delay paying off some debt early on so I could build mine up.

One of the most significant benefits of establishing an emergency fund early on in life is that you will be well-positioned to handle many of life’s financial pitfalls. (Check out Cit Bank to set up an emergency fund.) When you don’t have to pay for emergencies with credit cards or when you avoid that awkward position of having to borrow money from friends or family, it is freeing.

Unfortunate events happen to all of us, so having an emergency fund is absolutely vital to maintaining your quality of life. By having your emergency fund in place before an inevitable need ever arises, you will be in the driver’s seat in situations that might otherwise have left you scrambling for solutions. Knowledge is power, and an emergency fund is security.

●    Read: How to Build an Emergency Fund (Step-By-Step Guide)

How much should I have in my emergency fund?

As a single mother, my number one priority is to ensure that my son is well cared for. As you know, I felt $5,000 was a better starting point because I had a child. Later, I started working to raise the amount in my emergency fund to three to six months of earnings. 

Whatever you settle on as your “peace-of-mind” amount, make sure it is right for you. After all, the emergency fund is there to provide some financial security for you and your family. You can start your emergency fund online at Cit Bank. You might sleep well knowing you have $2,000 set aside — it really does depend on what you feel is needed. I know that I did not feel protected from life’s unexpected emergencies with only a $1,000 set aside.

When should I start my emergency fund? 

If you are behind on any payments, get caught up. If you are current on all your bills, then start building your emergency fund. The key is to start. That’s the whole trick to reaching your goal of an emergency savings fund: Simply start saving for it. Every little bit counts.

Tips to build your emergency fund faster

When it comes to saving for an emergency fund, a great place to start is with honing in on your budget and decide on a savings goal. If you have read my 9 Steps to Freedom, then you know your plan has to fit you and your individual life.

Without having a plan, it will be challenging to get ahead. So, set your goal and come up with a plan. 

Once you have a goal set, look at your budget and figure out how to transfer money regularly over to a savings account. Most savings accounts are free and come with no added fees, but remember to make sure it is FDIC-insured up to $250,000. Opening a savings account in a separate institution (like Cit Bank) from where you normally bank is a very good idea, but more on that in just a bit. 

Another critical step to quickly establishing an emergency fund is to automatically transfer money so that you get out of your own way. Automated transfers can make a big difference from a psychological standpoint in that you are taking yourself out of the equation, leaving you primed for success at reaching the all-important end goal.

If you don’t have enough money right now to reach your emergency fund right now, then look to cut expenses or make more money. Maybe you will make coffee at home instead of stopping by the coffee shop every day on the way to work to help jumpstart your emergency fund. Perhaps you will take advantage of cashback grocery apps, like Ibotta.

●    Read: 30+ Ways to Help You Save More Money

If you want to make some extra cash, there are plenty of ways, thanks to side hustles and the gig economy. Maybe you will pick up a little side gig you do from home that you find on Steady, an app that helps you find freelance work in your area or remotely.

●    Read: 10+ Legitimate Ways to Make Extra Income from Home

Emergency fund vs. savings account

Do you remember how I suggested setting up a savings fund at a different institution than you regularly bank at? This is because it is all too easy to use your debit card to access your emergency fund when it is kept alongside your checking account.

An emergency fund is exactly that — money set aside for true emergencies. So, it should not be tapped into for regular, predictable purchases or impulse buys because the deal is too good to pass up. Your emergency fund is to protect you, and it is not because you forgot to put something in the budget or for large, planned expenses (that’s what a sinking fund is for).

Use your savings account for expected specific goals. Your emergency fund should be there for the unexpected.

  • Read: How a Checking Account Cushion Can Save Your Budget

Where should I put my emergency fund?

Your emergency fund should be easy to access and readily available if you need it. That said, it shouldn’t be too easy to access where you are tempted to use it for non-emergency expenses.

A separate savings account located at another banking institution away from your standard checking account is a great option. This will give you the ability to have a debit card or check-writing privileges if you need it.

Personally, I always like to have some cash stored away. For me, it's about balance. Having cash on hand gives me the comfort I need to take care of anything immediate. A separate savings account gives me the satisfaction of knowing I have a plan in case something comes that is more long-term.

●    Read: Once You Have $1,000 in Your Checking Account, Do These 5 Things

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Filed Under: SAVE MORE, Saving Tips Tagged With: EMERGENCY FUND, EMERGENCY SAVINGS, SAVE MONEY, SAVING GOALS, SAVING TIPS

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Comments

  1. Priya | Paper Money Co says

    March 17, 2020 at 11:45 am

    My emergency fund was my #1 financial priority and goal. I started building it when I was in high school. I also don’t think $1000 enough for an emergency fund. I have many months worth of income and an extra $10,000 for emergencies such as medical bills or repairs to my car.

  2. Lisa says

    March 17, 2020 at 1:25 pm

    Do you establish your cushion first or your emergency fund?

  3. Steveark says

    March 17, 2020 at 5:31 pm

    Great advice, emergencies happen with no warning, this whole covid19 thing is a great or a bad example of how your income can be interrupted or reduced from something nobody ever heard of before. And there is no shortage of things that can cost money that you can’t avoid, especially medical things, but so many others. Cars, refrigerators, heat and air breakdowns, the list is endless. Good advice, its hard and painful to set aside money when there doesn’t seem to be enough to go around but it is one step to financial success that is very necessary.

  4. GingerNinja says

    March 20, 2020 at 9:19 am

    When I started the baby steps, I actually decreased my emergency fund to use some of the $ to pay off my bills. It caused me a bit of stress, but I still kept $3K liquid in a separate savings account with a different bank than the one I regularly use to pay bills and such. I also felt as though with my child it was not enough to only have $1K. I still feel like $3K isn’t enough, but I will build it back up once all my debt is paid off.

  5. Marsha F. says

    March 20, 2020 at 1:50 pm

    I never felt comfortable with only having the $500-$1000 in emergency fund and so I always made sure I had at least $2500 as a single women without children. I’ve been encouraged by your blogs and your YouTube channel. I also just completed your email course on budging and can’t wait to get my paycheck by paycheck planner. I’m happy to find your business Kumiko. Thank you for everything you do!!

  6. Debbie says

    March 27, 2020 at 6:04 am

    I agree with this SO much! I can certainly attest to the fact that $1000.00 is not enough if you have vehicles or a home to take care of. $5000.00 is a great amount to keep for peace of mind.

Hello, I'm Kumiko, but everyone just calls me Miko. Welcome to my blog, The Budget Mom. I am an Accredited Financial Counselor® , and mom to a rambunctious boy. Come along with me as I strive to live a life I love on a budget that I can afford. Read more about me.

RECENT YOUTUBE VIDEO

Ryen & I are talking about our June 2022 budget numbers! Not only do we show where our dollars went, but we also discuss if we stuck to our budget limits.

In this video, we are going over some heavy spending I had in June (thank you, sinking funds!) and Ryen gives an update on her debt payoff timeline. 

What do you do with your budget after the month is over, and you’re ready to begin a new month? Most people don’t realize it, but your spending throughout the month gives you some incredibly helpful information.

One of the first steps to creating and sticking to a realistic budget is tracking your expenses. Your spending is the underlying foundation for creating a budget and ensuring that your budgets in the future are successful.

If you are not aware of where your money is going, you can’t make the best decisions for your dollars. Today, I am going to show you how to extract all of the vital information from your expense trackers using the "Where Did My Money Go?" Worksheets.

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