BrightDime Basics: Emergency Fund

One area of financial wellness many people struggle with is building and maintaining an adequate emergency fund. In our BrightDime Basics series last week, we reviewed rainy day funds, which are similar but created for smaller financial inconveniences like car or appliance repairs. A true emergency fund is a cash cushion you set aside to cover larger, longer term expenses like the loss of a job or unexpected illness and medical bills.

After establishing a $500 rainy day fund, we recommended building on that to create your emergency fund. Most experts recommend in the range of three to six months of necessary expenses (in other words things you can’t live without). That’s a great target for most people. If you lose your job it gives you the time to look for a new job without necessarily having to take the first thing available. If six months doesn’t feel like enough to you, keep adding to it. On the other hand, if you’re in a stable situation and have your budget running smoothly, two to three months of expenses might be enough for you.

An emergency fund should be safe, accessible, and stable. The simplest option for most people is to use a dedicated savings account for their emergency fund (not your everyday checking account) which helps keep the emergency fund separate (out of sight, out of mind) and keeps you from spending it on day-to-day things. By having these funds set aside, you can avoid having to use credit cards or taking loans (costing you more in the long run) if something happens.

Need to work on your emergency fund? Just login to your BrightDime account and chat with a coach.