SMS 134 – Re-Thinking Emergency Funds

What is an emergency fund?

  • should be 3 to 6 months of survival expenses
  • Insulation from life (living insurance) – removes risk from you life

The purpose of an emergency fund:

  1. Job loss
  2. Unanticipated expense

Who needs an emergency fund:

  1. Negative net worth – having debt in your life adds risk
  2. Relative low income – close to the financial edge
  3. Home owner – learn to predict expenses
  4. Car owner – learn to predict expenses
  5. Unstable employment – be observant
  6. Significant number of dependents – adds complexity to your life
  7. Known credit issues

How to build and manage an emergency fund:

  • Make it a line item in your budget
  • Stop all savings & aggressive debt repayment until you have $1,000
  • Aggressively build up 3 to 6 months of survival expenses
  • Have the discipline to not spend it on non-emergencies
  • Make it accessible but not too accessible

Who doesn’t need an emergency fund:

  • Positive net worth with no debt
  • Earn significantly more than you spend
  • Do not have credit issues
  • Very stable employment

Mr. Money Mustache

MMM vs. The Emergency Fund – MMM Show Episode 9

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