Why Should I Have An Emergency Fund?

Many people don’t have an emergency fund because when they accumulate some money, they spend it. An emergency fund should consist of 3 to 6 months worth of living expenses held in short term investments. Whether you have 3 or 6 months depends on whether you have one or two incomes. The rule of thumb is that a family living on one income should have 6 months worth of expenses. A family with two incomes may be able to get by on 3 months worth of expenses.

Disability insurance policies can also affect how much you should have in your emergency fund. Most disability policies begin to pay after 90 days, or 3 months. In this event many people think that a 3 month emergency fund is all they need. This is not true. If they lose their job, and it isn’t due to disability, the policy will not pay.

Building an emergency fund may seem like an arduous task. In all honesty, most of the difficulty is all in your head. For example:

My wife and I had our first child in January 2007. Talk about not knowing where you are going to get the money for extra expenses, we had no idea how we were going to afford childcare, and everything else from diapers to formula. We both work, and while we have an emergency fund, we didn’t want to tap into it for an ongoing expense.

The truth is that the best way to save for an emergency fund, or anything for that matter, is just to set it up automatically, and let everything else adjust. Not only did we begin paying $500+ a month for child care, I also began contributing $300 to a Roth IRA. This is $800 a month that we had no idea we could afford until we had to.

This may seem like a crude example, and yes, we did have to make some adjustments, some of them more painful than others, but I can honestly say after 14 months with my son, it is worth it. Now baby two is due in December and our daycare bills will increase to about $1,500 a month. This shouldn’t be a problem as I’ve already started saving $500 a month extra towards our emergency fund, and another $100 to bring my Roth IRA contributions to $400 a month. And yes, adjustments have been made, some more painful than others. Golf and Aikido are out because they cost money. Running and time at the park are in because they are free.

About the author

Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.


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  • I fall into the ‘not my cup of tea’ camp on cross-nursing, but I would dnelfiteiy reconsider in a crisis. It’s one thing when alternatives exist, but it’s quite another when there are lives on the line. I would also breastfeed my weaned child(ren) in the same situation. Sometimes you just do what you have to.Watching the aftermath of Hurricane Katrina, when there was no water or formula, made me so thankful for breastfeeding. It’s just one less thing to worry about, you know?

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