Monday, November 11, 2013

Emergency Savings

Firetruck! The universal symbol for emergencies?

Read this if: 

1) You are responsible for yourself in some way (e.g. you have a car, you pay your own rent, etc.). 

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At some point in our lives, we will become financially independent and have to fend for ourselves. At that point, it will be really important that we have emergency savings set aside to cover unexpected costs.

Motivation 

According to The National Foundation for Credit Counseling, "... insufficient savings tops the list of U.S. adults’ financial worries: more than two in five U.S. adults (43%), or 
about 100 million people, say not having enough “rainy day” savings for an emergency worries them most, and nearly the same proportion (38%) are worried about retiring without having enough money set aside." (2013 Consumer Financial Literacy Survey found here). 

As you can see, living without a substantial cushion of money is something that seriously concerns even adults. 


How much should you have? 

This will obviously differ from person to person, because it depends on what you are responsible for. My best friend lives at home so all of her living expenses are covered, but has her own car, which she is expected to pay the insurance for. For her, I would suggest that she keep enough in an emergency savings to cover the average car repair cost. 

Where should you keep this money? 

I highly recommend a money market account, which I wrote about a while ago. You want to keep your emergency savings easily accessible, but you also want it to gain interest while it's sitting there waiting for something to happen. A money market account allows both. 

Note: So does a traditional savings account, you can't go wrong with either. The point is to keep it somewhere where you know you can access the money as soon as possible.

Why should you distinguish between "emergency savings" and other money? 

If I had $5000, and kept $1000 tucked away in an emergency savings account, then I would know that I could take more risks with the rest of my money by investing it in stocks or mutual funds. The biggest point to take away here is to not risk ALL of your money, and make sure that you always have enough to access in case of emergencies. This will become much more relevant as we get older and have more responsibilities.

Bottom Line

Have a nice bucket of money somewhere, and promise not to use it except in emergencies.

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As always, contact me with questions or suggestions! You can either comment directly on the post or send me an email to moneymattersjoan@gmail.com. 

Photo Credit: Dunechaser via photopin cc

7 comments:

  1. Do you have a ballpark for the average cat repair cost?

    ReplyDelete
  2. Hi Tim!

    Did you mean:
    a) Cat
    b) Car

    If you meant "cat" then I can't tell you because I have never owned a cat, but I imagine cat doctors are mighty expensive.


    If you meant "car" then I still can't tell you because I have never owned a car. (But this site is good for estimates based on your car and the service you need: http://www.automd.com/repaircost/, and this site is a good reference for the most common car repairs: http://autos.yahoo.com/news/10-most-common-car-repairs.html?page=all)

    ReplyDelete
  3. I meant cat. Did you not mean to write the "How much should you have?" section the way you did?

    Even if you didn't, you should leave it. Still makes sense but is much more entertaining.

    ReplyDelete
  4. I will look into writing a post about cat repair costs.

    ReplyDelete
  5. Immediately.

    ReplyDelete
  6. OH
    Ok so this xkcd comic: http://xkcd.com/1288/
    mentioned substituting all these weird words, and I got a script that made my browser substitute them. Then forgot about it.

    This is why, to me, your third paragraph literally says "For her, I would suggest that she keep enough in an emergency savings to cover the average cat repair cost."

    I understand your confusion.

    ReplyDelete
  7. OH. WELL. THANKS FOR THE ENTERTAINMENT ANYWAY.

    ReplyDelete