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.
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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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