MainStreet.com quoted me in Here’s How to Build a Sturdy Household ‘Cash Crisis’ Fund. It reads, in part,
Americans aren’t big on emergency savings funds: only four in ten U.S. adults have one, according to a 2015 study by Bankrate.
But if your Jeep Cherokee needs $1,000 worth of transmission work, or you need to cover a $6,500 health care plan deductible in a medical emergency, a household rainy day fund may be one of the best insurance policies you’ll ever own.
Before we get on the path to starting a savings fund quickly and effectively, understand first that an emergency fund and a rainy day fund are two different animals. A rainy day fund is smaller in size than an emergency fund: whereas $1,000 might form a good rainy fund, a decent-sized emergency fund should have between $3,000 and $10,000 in cash.
The key to building both, however, is similar – just get started.
“Jump start an emergency fund with a windfall like a tax refund, profit sharing check, stock sale, or an inheritance,” says Sharon Marchisello, author of the book Live Cheaply, Be Happy, Grow Wealthy.
“Start out gradually and ASAP, putting aside as much as you can on a regular basis,” she adds. “You’ll be surprised how fast it will grow if it’s left alone.”
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Once you have accumulated a decent-sized emergency fund, don’t take the experience for granted.
“One of the things emergency savers should avoid is resting on their laurels,” says David Reiss, a law professor at Brooklyn Law School. “If you have an emergency and you deal with that rusted-out boiler or that leaky roof without having to go to your credit cards, you feel like a genius. But then you have to start saving immediately for the next emergency, because as every experienced homeowner knows, another problem is just waiting to happen.”
Building the perfect emergency fund calls one part diligence, one part creativity, and one part patience. Put all three together and sleep easier at night as your safety net fund grows accordingly.