Wednesday, May 27, 2015

Getting Started on Your Emergency Fund

Getting Started

In FPU, we suggest a starter emergency fund of $1000 and want you to get this in place within a month. You can work overtime, sell things on CriagsList or have a garage sale, to generate cash.

After getting out of debt you then work hard to get the fully funded emergency fund in place.

The Fully Funded Emergency Fund

The $1000 is a good start and keeps small everyday emergencies from driving us to borrowing. The fully funded emergency fund is the next step. It consists of 3-6 months of your expenses in savings, which provides a buffer against larger emergencies like losing a job, large medical bills, or water in your basement. The average family's emergency fund should be approximately $20,000 - $30,000. If the Petersen's had this level of emergency fund in place we would not have needed to borrow for our water leak emergency I described at the begining of the article.

Your emergency fund is not an investment. It should be viewed as insurance. A great place to keep your emergency fund is in a money market account with check writing priveleges.

The emergency fund is for true emergencies that cannot be anticipated, like a flooded basement. It is not a new truck fund or a new couch fund. The emergency fund shouldn't be used for vehicle replacement or repairs (see April ARC Magazine article “How to Pay Cash for Cars”). You should be saving regularly for those. If the emergency fund is used, the funds should be replaced as quickly as possible

Many people who establish their emergency fund, report a sense of peace when the unexpected arises. Previously, they experienced both a financial and emotional crisis. Now Murphy (whatever can go wrong will go wrong) seems to go down the street to pick on someone without a emergency fund.

Emergency Funds for Students

Building an emergency fund is a good discipline to learn at any age. We recommend a $500 emergency fund for high school and college students to cover things like an unexpected car repairs or damage to a computer.


Brian and Lisa Petersen lead the Financial Peace University course at Autumn Ridge Church. Concepts like the one discussed in this article are taught in FPU. Brian and Lisa welcome your questions on building your “Emergency Fund”.

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