Today I was reading an old posting on a blog called Wise Bread, about the size of your emergency fund. As you'll notice, my current savings is at zero ("...point zero" - for those Howard Stern or Animal House fans out there). Anyway, I'm smart enough to know that I need to start growing my emergency fund. What I'm unsure of is how big I should grow it. Since savings accounts are currently paying next to nothing in interest, any extra funds I have at the end of the month, I'd almost rather put right towards lowering our high interest debt.
I do plan to set aside $100 (or more) per month into savings, but at what point will my emergency fund be complete so that I can begin putting that $100 towards debt? I've read different theories on this one. Some say 3-6 months worth of expenses should be your target. That would take me a very long time to do and I think it's a bit more than I feel I want to do at this time. Others recommend $1000 as a good start. I'm worried that $1000 may not go far if I were to lose my job, especially given that our rent is currently at $1375.
I'm leaning towards my emergency savings goal being equal to one month of expenses - to start. I would like to increase that in time, but I think this is a realistic goal to shoot for. A quick analysis of my budget tells me that one month of expenses is about $4500. Wow. That's not rock bottom expenses though. It includes our current cable package, cell phones, NetFlix, paying a little extra on our debt, putting some in savings, etc. If I had to cut some things out and live on the bare necessities, I'm sure we could lower those expenses some. For now though, I'll think I'll target $4500 as our new emergency savings goal.
My current plan puts me meeting only half of that goal by the end of 2011. That would mean December 2012 is when we'd hit our emergency savings goal target. Hmmmm, kinda far off for my liking, but I guess some goals are a little harder to achieve to than others. I keep telling myself that it's a marathon, not a sprint and that we'll get there. We'll get there.