Emergency Fund For, Well... Emergencies

Texas had its first harsh week of winter in what seems like forever. We took a few weeks off from this blog for the first time in nearly a year and it felt a little weird, to be honest. Overall, I feel like it was good to take that time off to take care of a few personal things.

The entire state was unprepared and very little could be done the week it was happening. While many fingers have been pointed to the unregulated energy producers in Texas and their greed, we can draw one main lesson from this: preparing for the unexpected.

Some would argue that if the energy producers had simply weather-proofed their facilities, the rolling blackouts would not have happened. After all, many of our northern companions face freezing temperatures each year and they do just fine year after year. Without going too deep into it, it's easy to see that preparing for emergencies is important in all matters. It reminds me of the ever-true saying: An ounce of prevention is worth a pound of cure.

So with that in mind, do you have an Emergency Fund (EF)? If so, how much do you have set aside for emergencies or if something catastrophic were to happen? Many professionals will tell you that $1,000 is the bare minimum needed to weather most emergencies. We've heard that having 3 months of expenses will give you peace of mind. The difference between $1,000 and 3 months of expenses is quite large. After all, 3 months of expenses varies from person to person. I believe that the sweet spot is closer to 2 months.

Personal finance is very personal, so understanding your own physical needs as well as your psychological needs is important. How much money do you actually need to pay your rent or mortgage? How much do you need for food and transportation? What about electricity and water? These physical needs are the most basic needs, so you should arguably have at least 1 month's worth, even if that means more than $1,000, but that requires you to have a full understanding of your expenses.

Psychologically, I think that most people would agree that having just one month's worth of expenses is not much, especially if you end up losing your job. The pressure of having one month to find a new job while your savings dwindles can be very stressful. The goal isn't to have an exact amount lying in your bank account. Rather, it's about peace of mind. Having money to get you through a tough life event can make or break a person's mental health. That's why saving up 2 or 3 month's worth of expenses is a wise thing to do. Do you have the mental fortitude to push through a job loss? Many people throughout the world faced this exact issue last year at the start of the pandemic. Their mental toughness and budgets were tested to the extreme. It's never too early to start preparing. And along with that note, never too late, either.

Personally, I hover at about 2 months worth of expenses in my bank account for emergencies. I prefer to put most of my money into investment accounts rather than building up a 3rd month worth of emergency funds. There's also a consideration for catastrophic emergencies that I can also dip into my brokerage account to sell stocks or withdraw money from my ROTH IRA (Individual Retirement Account) if needed. With regard to health catastrophes, I have been putting money into a Health Savings Account (HSA) for the last 5 years. It has been a great vehicle for saving and investing. More on those topics in the future!

Overall, both Camilla and I have enough money to weather a big storm. We have separate accounts and will combine them after we're married. Our challenge to you is to once again look at your expenses, understand how much you're spending so you can really think about how much you need in your emergency fund. I am wishing you a wonderful end to the winter season. It's been a tough one for many, so spring is a welcome change. Camilla and I will be getting married soon, so we're incredibly excited for spring time to come. Please pray for us as we continue our marriage preparations!

Peace,

Khang