Emergency Fund 101

How much should you save to start an emergency fund?

Ahhh, the emergency fund.

It’s something you’ve probably heard about whether you’re just starting out on your personal finance journey, or are a budgeting pro. But how much should you be saving? What is considered a true “emergency”? Do you even need an emergency fund?

The Basics of Starting an Emergency Fund

Let’s start by defining what a financial emergency is.

A financial emergency is something unexpected that happens that has not been planned for elsewhere in the budget and needs to be dealt with immediately.

When things like that happen, it helps to have money in the bank to deal with it. When I first started budgeting, I made a goal of saving a $1000 emergency fund. It was advice I’d heard often and it seemed sound. It took about a year, but eventually I got there.

I also started saving for my True Expenses. I started putting money aside for car repairs, the holidays, annual bills and all the other non monthly expenses that everyone deals with.

Time marched on. My emergency fund dollars sat there. And sat there. And sat there.

  • They sat there and watched my car suffer a $750 repair. They did nothing.
  • They sat there when my dog Charlie got into something he shouldn’t have and needed a quick (and expensive) trip to the vet.
  • They sat there when I registered my car at the town hall, a once a year expense.

All these things would have been emergencies before I started budgeting. They were unexpected and not planned for and needed to be dealt with immediately.

But they weren’t emergencies now. The longer I budgeted, the fewer emergencies I had. Huh. How about that?

So does that mean you shouldn’t have an emergency fund? Not at all. Things will happen that you cannot anticipate. Having money around for those moments is just good sense.

So what would I define as an emergency now?  

Well, there was that time the sewer line to the septic tank was blocked and water was no longer leaving the house.

It certainly was unexpected, but I have a category for house maintenance. Things break on houses. Did it belong there? You could definitely make an argument for that. I could have categorized it that way. So why did I categorize it as an emergency?

Because it felt like one. Seriously, I couldn’t get a plumber to the house fast enough.

Then there was a time I wanted to help fly a family member home quickly. It was unexpected and not planned anywhere in the budget. And adding a category for “Helping a family member fly home quickly” felt unnecessary.

There was also the time we had a very severe fall storm that knocked out the power for four days. I couldn’t cook and it was the end of the month so my dining out category was drained. I could have shuffled some money around, but it was nice to not have to.

So go ahead and start saving for that Emergency Fund. But as you save for True Expenses, I’m betting you won’t need that emergency fund as much as you thought.