Monday’s Money Medicine: Do You Have an Emergency Fund?

A weekly dose of tips to help you manage your money

I’ve recently been writing a lot about emergency funds. Makes sense, since we’re in a recession and millions of people have lost their jobs.

I must confess, though, that I haven’t been taking my own money medicine in this regard. I’ve been bad about setting aside money for emergencies. So, I’ve taken steps to create an emergency fund. Practice what you preach, right?

An emergency fund helps cover everyday expenses in case of an emergency, such as a job loss, unexpected car repairs or surprise medical bills. As a rule of thumb, an emergency fund should contain enough money to pay three to six months’ worth of living expenses. 

An emergency fund that would cover one or two months’ worth of living expenses is far better than no emergency fund at all, though. At the other end of the spectrum, an emergency fund that would cover nine months’ of emergency expenses (or more) would be ideal.

Keep in mind that an emergency fund is not meant to pay for a getaway to Greece or a Queer Eye-worthy wardrobe makeover. This fund should be separate from your regular checking and savings accounts — perhaps even at a different bank or credit union. (That’s the approach I take, so that the emergency money is out of reach if I’m tempted to go on a shopping spree.)

Here’s to your financial health!

Your Money Doctor,

John Egan

Here’s a curated collection of money prescriptions that can help protect or heal your financial health. (Full disclosure: Some of these links might be from websites that I write for. They have not paid me to include these links.)

How Much Money Should I Be Saving? (You might recognize the author’s name)

Are Credit Cards Good or Bad? (Written by my colleague Lance Cothern)

4 Investing Lessons to Learn From Warren Buffett

How to Start Teaching Personal Finance to Your Kids

How to Become a Millionaire: 7 Steps to Reach Your Goal