I’ve said it before and I’ll say it again, I DO NOT BELIEVE IN MURPHY. If you fail to plan, you plan to fail. This is exactly why you should be asking yourself, “How much should I have in my emergency fund” right now!

Can you actually survive on a $1,000 emergency fund?

Maybe.

But if you’re already bound by debt, why set yourself up for failure by not planning sufficiently??

According to a recent Bankrate survey, only 39% of American households would be able to cover a $1,000 setback.

This statistic is scary and it is a prime example of why you absolutely need an emergency fund.

Emergency Fund = a specific amount of savings set aside to only be used in the case of an emergency (job loss, sickness, huge repairs, etc).

If your total monthly expenses are actually equal to $1K, then fine, maybe $1K is good enough while you’re paying off debt.

However, if your monthly expenses are not equal to $1K, you need to seriously consider the following suggestions:

How much are your monthly expenses?

We believe that you need to have money saved for a true emergency. If you lost your job today, got injured or had a delay in pay you’d need a way to still cover your expenses.

This number is going to be different for everyone so you have to figure out what YOU need and not just go by what someone else tells you.

We grab our number directly from our budget spreadsheet because it adds all of our expenses together and tells us exactly what we need each month. Grab one of our spreadsheets and try it for yourself.

Does anyone depend on your income?

Having an emergency fund in place doesn’t just protect you, it also protects anyone that depends on you as well.

Do you have a spouse, children, or parents/other family members that rely on you for support? If so, you need to include that fact in your emergency fund calculation.

If anything happens to your income it will have ripple effects that will impact everyone that depends on you. So make sure you keep that in mind!

What is the condition of the things you rely on daily? (car, house, appliances, etc)

Is your car falling apart? Is your house going to need a new “something” soon? If so, you might need to consider this in your emergency fund calculation as well.

Not only will your emergency fund have to cover your normal bills it would also have to cover any repairs or replacements you might need as well.

If something unexpected happened tomorrow, could anyone bail you out?

How much you save away can also be influenced by the likelihood that someone you know could actually help you out when you’re in a jam.

If you have parents or family members that are doing well financially and would be willing to lend you money, you can probably save a little less. Knowing that you have people in your corner that could step in during your time of need can ease some of the stress of building your emergency fund to the proper level. Unfortunately, most people don’t have anyone that could do something like that for them.

Personally, I wouldn’t rely on this strategy either way, because your situation will be made a lot worse if you think someone will help you and they decide not to or are suddenly no longer able to.

Your creditors WON’T give you a refund.

In most personal finance conversations, certain people suggest that you should only save $1,000 and then throw every single dollar you have left towards debt.

This is fine if $1,000 is all you’d ever need during an emergency. But, if you need more, you won’t be able to get a refund from the debts you’ve already paid off. Most likely, if you don’t have enough money saved you’ll end up turning back to credit cards or loans to cover the areas where your emergency fund fell short.

And before you say it, NO, we aren’t saying you should stop paying off debt, we just want you to be SMART about it while doing so!

So, how much should I have in my emergency fund?

The fact of the matter is, things will go wrong sometimes. We just want you to be prepared. The way we look at it, the longer you expect your debt payoff to take, the more prepared you should be during that time to cover anything that happens.

Here’s a quick example of what you could save in your emergency fund based on your estimated debt payoff timeline:

1 months expenses – 1 year debt payoff

2+ months expenses – 2 year debt payoff

3+ months expenses – 3 year debt payoff

Remember, you have to figure out what works for your situation, so here’s the challenge:

Ask yourself, “How much should I have in my emergency fund?” and then actually figure out that answer today!

$tay Wealthy Friends,

— Dannie

Do you have an emergency fund in place?

If so, how did you decide on the amount that you put in it?