When is the right time to start an emergency fund?
Craig (of Budget Pulse) recently asked, “Everyone stresses an EF [emergency fund], but when’s the right time to start one?”
I think he brings up a good question — one with a brief, all-purpose answer:
Now.
If you don’t have an emergency fund, start building one today. Right now. Open up an account and send a dollar to it.
Really.
Building and maintaining an emergency fund is probably the single thing you can do that will have the biggest long-term impact on your finances.
It may seem like a waste to have money “just sitting there” instead of investing it, but investment equals risk.
And that money IS doing something for you. It’s not a waste.
It’s providing a safety net, one that you’ll be exceedingly grateful for when your first emergency happens, or when multiple emergencies happen one after the other.
I don’t know anyone who makes it through their whole life without an emergency, so this is critical.
Starting one can be as simple as sending ten cents to the bank for every dollar you bring home. Or just sending SOMETHING each month, and then not touching it except in the case of a pre-defined emergency.
Continue this until you reach your goal amount, and THEN move on to your other financial goals.
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June 2nd, 2009 at 7:10 pm
Definitely I agree the best time is always now. It is more difficult at times to figure out how much that initial emergency fund should be. 3-6 months expenses is a common recommendation.
However, I do like the Dave Ramsey plan of a smaller $1000 emergency fund (I know, it often is not easy even to get that amount of a fund). Then with all money beyond expenses that comes in, pay off debt. If you can pay off smaller debts you get more room in the budget to cash flow smaller emergencies if necessary.
June 3rd, 2009 at 6:34 am
I know lots of folks struggling with the concept of an E fund while paying down debt-should they even have one, etc. I agree with you 100%, simply put, open some sort of an account and start funding it, even if it’s with a few dollars a week even if you are paying down your debt. If you have a true emergency and have thrown all your cash towards debt and no access to any additional funds what are you going to do? At least with an E-fund there is some cash somewhere for you!
June 3rd, 2009 at 8:55 am
I agree, there’s no time like the present! It takes awhile, but it is possible. :)