In the Budget Binder, I teach you to set a $1,000 emergency fund. Once you have this established and you have paid down/off your debt, the next financial goal to save for is a 3-6 month emergency fund.
I have gotten a few comments asking me why I don’t teach people to save a 3-6 month emergency fund immediately. Before publishing the Budget Binder, I had real life people use it. Real life people who make a middle class wage, live a middle class lifestyle and have debt to pay off. If I had asked them starting out to save 3-6 months worth of income before paying off their debt, they never would have stuck with the budget. They would have found the entire process too overwhelming, thrown up their hands and gone back to living without a plan.
I’ve also had people ask why I advise people who are in debt to have a fund and save for their goals. I developed the system of Couponing to Disney because it can be attainable for everyone, no matter their income or their debt. I teach people how to save money on everyday expenses and put the money they save towards their fund. I don’t teach people to prioritize saving for their fund over paying their debt or growing their savings account. Having something to save towards, like a trip to Disney World, will keep people motivated to stick with all areas of their budget including paying off debt and growing their emergency funds.
Remember this one post is just building on things that I have already taught in theĀ Budget Binder. Be sure to read it if you haven’t already.
The 3-6 Month Emergency Fund
This 3-6 month emergency fund is meant to pay your family’s bills and living expenses in the event that one or both income earners are out of work. But how much should you save?
Some financial experts advise that you should save 3-6 months worth of income. So if your family makes $3,000 a month, you would save $9,000 for a 3 month emergency fund or $18,000 for a 6 month emergency fund.
However, saving that much can be very daunting and feel completely unattainable. So here is another option:
- Sit down and make a list of all the bills you absolutely have to keep in the event that you are out of work. Cable, Netflix, Gym Memberships, After School Activities, etc. are a few of the bills you could eliminate during this time frame. Add all of your bills together that will be due each month during the 3-6 month time frame.
- Next make a list of how much your living expenses would be. Do you really need a dining out and entertainment allowance if you are out of work? Add all of your weekly living expenses together that you will need each month during the 3-6 month time frame.
- Next add the monthly bill amount to the monthly living expenses about and then add an additional $200 to this amount to give you some wiggle room. Multiply that amount by 3 and you get the goal you need to set for your 3 month emergency fund (just double that amount if you are going to save for a 6 month emergency fund).
Having at least a 3 month emergency fund in savings will be a huge weight off your shoulders. Don’t forget that you can track this goal on the Savings Account Worksheet in the Budget Binder. And remember that you should always do what is best for your family when it comes to your budget.