As you have probably heard by now, the US government went through a partial shutdown from December 22, 2018, to January 25, 2019. Nearly 800,000 government workers were affected, and most were not given a paycheck for up to two pay periods.
The point of this post is not to get into politics. It’s to illustrate an important point about your adult finances: why you should have an emergency fund.
Why Have an Emergency Fund
Imagine for a moment that you are one of those government workers who didn’t get paid for a month. Would you have been able to make it through that time without taking on any debt? Without maxing out your credit card? Without taking a payday loan (by the way, please never ever do this)? How would you have paid for your basic expenses without your paycheck?
Enter: the emergency fund. Your emergency fund is designed to help you cover your expenses in case something happens. In this case, that “something” is not getting paid for a month. A government worker with an emergency fund would have a financially easier experience during a shutdown because they could cover expenses with money they saved up. Even if they’re not able to cover ALL their expenses, the emergency fund can at least help minimize the damage.
Of course, emergency funds are valuable for everyone, not just government employees. They’re useful in situations like getting laid off, having a medical emergency, or something expensive breaking in your home. Wouldn’t it be nice to have peace of mind to know you could handle something like that?
How Do I Get An Emergency Fund?
I was hoping you’d ask. Most people build their own emergency fund with their own money, but you’re welcome to ask others for money for it, too. Not sure how successful you’ll be with that, though…
I recommend starting with a savings account. A savings account is great because the money is easy to get to, but the law regulates how many times you can withdraw from it without paying fees. Hopefully, this means you won’t be tempted to withdraw from it in non-emergency situations. Ideally, this account is separate from all your other bank accounts so that you know not to spend it.
If you don’t have a savings account, I would highly recommend opening one. Many banks allow you to open one as long as you put a minimum amount of money into it.
If you don’t have the minimum right now, don’t worry. You can keep the money in a checking account, or the physical cash somewhere safe. Start by saving up to get the minimum, then working on your full emergency fund.
How Much Should Be In My Emergency Fund?
When it comes to the amount that should be in your emergency fund, the general consensus is three months’ worth of expenses. If you don’t know how much that is for you, use this guide to help you figure out what your monthly expenses are.
Let’s be honest: saving three months’ worth of expenses is hard for many people, especially when you’re just starting to learn how to save your money. Dave Ramsey recommends starting with a $1000 emergency fund if you have debt you need to pay off. I agree with this for most situations. I also think $1000 is a great goal for someone who is new to saving.
How to save money to put into an emergency fund is beyond the scope of this post, but I’ll be releasing a post on how to save money in the coming weeks. I know you are all SUPER excited to control your spending habits!
In the meantime, I recommend starting by figuring out how much you are saving each month already.