It’s raining outside today and I get to stare out my window and watch as the grass (weeds), trees, and houses accept the rain as it comes down on them. It is super cozy and safe from where I am sitting and my body feels calm because I know that whatever happens out there, I will be ok.
This feeling of safety and calm is the feeling that my rainy day/emergency fund gives me. So I wanted to write about that concept today to spread the word!
So, what is an emergency fund?
An emergency fund is a set aside amount of money, in a savings account, (hopefully one with a great interest rate/APY), that can cover you in an emergency such as losing a job or receiving a large, unexpected hospital bill. A good rule of thumb for an emergency fund is to have 3-12 months of living expenses (start with 3 months and see how that feels!). It isn’t there for you to pay for an unexpected vacation or fun, expensive pair of shoes.. It is there to keep you afloat and feeling safe through unexpected life changes.
If you’d like to know how much to save up for an emergency fund, Nerd Wallet has a great calculator.
So why is an emergency fund important?
Emergency funds are an important, if not the most important, factor in feeling financially safe.
In summer 2024, Vanguard surveyed over 12,000 of their customers to better understand the relationship between a variety of financial statuses and well-being. They found that “overall, having both $2,000 and three to six months of expenses in emergency savings is associated with a 34% higher financial wellbeing score.” In short, having emergency savings is the single biggest factor in increasing financial well-being.
If you are looking for your highest leverage activity (unless you have credit card or high interest debt, then we should talk!) to improve your well-being, safety, and maybe confidence overall, this is a great place to start!
How does this land with you? What is keeping you from starting your emergency fund right now? Let me know if/when you start your fund and how I can help!
Warmly,
Your personal finance friend