Normally, I’m a hustler. I have a full time job, run my own content management business, and of course freelance write. I’ve never thought that I truly needed an emergency fund, because I have never been out of work.
Then, I was rear ended in a car accident. My car was totaled, and I sustained a concussion. I had to go on short term disability, I could no longer look at screens to write, manage my customer’s marketing, or even do my daily job.
Suddenly, I realized my savings was going to have to last me an indefinite amount of time – the amount of time my doctors said I would be out of work until my brain healed.
I am incredibly fortunate. The day before my accident, I’d taken out enough money to pay off my student loans. That money was sitting in my bank account, waiting for me to transfer it to my loan provider. Now, it would replace my income.
Common wisdom is that you should have an emergency fund, but no one’s really sure how to get that far or how much they need. In fact, in this day and age, even a simple savings account can be luxury. Bankrate’s latest Financial Security survey less than 40% of Americans have enough money in their savings account to cover a $1,000 emergency.
A $1000 emergency ignores the time lost from work. At the same time, $1000 couldn’t cover most people’s household costs if an employer suddenly downsizes their workforce. It might not be enough to keep you afloat until unemployment insurance kicks in.
An emergency fund is designed to cover your expenses in case you are unable to work. It can also account for unpredictable medical or dental bills, or a sudden repair needed for your home. Conservative estimates suggest that you should have between three and six times your monthly income saved in your savings account to cover you in case of hardship or injury.
That can be a shocking number to some people. If your monthly expenses are $1,700 that means you should be saving somewhere between $5,100 or $10,200!
Most people are so shocked by that amount of money they simply don’t start saving. Another difficulty is that an emergency fund is an abstract savings goal. Most people have no problem saving for a trip or Christmas gifts. Saving, simply to leave a sum of money for a rainy day, is a goal that hard to get behind.
However, a little bit of savings can protect you from an eviction or needing to go hungry when caring for a loved one.
Instead of focusing on the large goal of a three-month savings account, work on simply putting away $10 or $20 per week if you can. The money will grow over time and be there for you when danger strikes.
Even a small investment, like $20 a week (which is $3 a day) can grow to $1000 after one year! By slowly building towards your savings goals, you can protect yourself from making a bad situation, even worse.
I’m thankful that I put this money aside when I had the chance- it means I can recover without worrying about needing to find out a way to pay the mortgage or cut corners at the grocery store. The only worry I have as I recover from this concussion is who will drive me to actually get those groceries.
With luck, that will help me get on the path to recovery a little quicker.