My Journey Out of Debt Step #5: Grow Your Emergency Fund

Emergency Savings Fund
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If you’re breezing through the steps and have numbers 3 and 4 checked off, you’ve built up some serious momentum. But don’t stop there. Now it’s time to stockpile your emergency savings!

Over the years, financial pundits have gone back and forth on how much money constitutes a fully-funded emergency fund. I’ve consistently read that anywhere between three to eight months is a good emergency fund stash. Logically, though, it would make sense to put away a rainy-day fund equivalent to the amount of time it will take you to secure a new job once you’ve lost your prior income. According to reCareered.com:

“On average, it’s taking about 6 months [to land] a new position, and 9-12 months for an executive role.”

So ask yourself, “Self, what would it take for me to live for at least six months if I lost my income?” How you answer that question determines how much you need to tuck away. As financial expert Dave Ramsey would advise,

 “Use this money for emergencies only: incidents that would have a major impact on you and your family. Keep these savings in a money market account. Remember, this stash of money is not an investment; it is insurance you’re paying to yourself, a buffer between you and life.”

TODAY’S BITE-SIZED TO-DO: Answer your “what if” question and determine how much money you need to put away in your emergency fund. Then open up a money market account and start stashing cash! (To give you some context, this step took me about 4 ½ months to complete.)

In the next post in this series, we’ll talk about investments —your retirement and the kid’s college fund. You’ll be surprised to learn how much should go where and which should take precedence!

Feel free to review the first four posts in the series . . .

Step 1: How I paid off $93,000 in less than 3 years

Step 2: Budgeting

Step 3: Save $1000

Step 4: Debt Snowball

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