Which Factor Is Important To Consider When Building An Emergency Fund? – FAQ

Which Factor Is Important To Consider When Building An Emergency Fund? – Determining your minimum monthly expenditures is the most important factor in building an emergency fund.

First factor which factor is important to consider when building an emergency fund, your expenses.

The goal of an emergency fund is to replace income used to keep a roof over your head, food in your stomach, and utilities. Beyond that, there is only so much else you should focus on.

Emergency funds can be started at any step in your financial independence. Suppose you follow Dave Ramsey’s Financial Peace University. In that case, your first $1,000 starter emergency fund is started when you decide to start working for yourself, not your lenders.

So, all your outstanding debt(credit cards, car loans, mortgage, etc.) should be included in your monthly expense calculation.

How Do I Figure How Much I Need Per Month For My Emergency Fund?

I will briefly cover it here. Still, later, I plan on posting a more detailed process for preparing your emergency fund based on your monthly expenses.

Get a running total of your Rent/Mortgage, Property taxes, insurance payments, food costs(cooking in, no going out to eat), utilities(electric, gas, internet, NO premium Streaming or Cable services), minimum payment totals of all outstanding debt(hopefully this is zero, minus your mortgage), and misc costs(transportation costs to get to your next job).

Figuring A Monthly Expense History.

Now, I can go on and do so later in another post, but this list is a good starter for now.

What Steps Are Required For An Emergency Fund?

First, Determine your minimum monthly expenses, focusing on paying the required living bills and making it into the next month. Your “monthly expenses.”

Second, use your minimum monthly expenses as a blueprint for building your emergency fund and as a goal to identify unnecessary expenses you can work on eliminating.

This way, you can generate your first $1,000 (FPU Baby Step #1) starter emergency fund.

Also, listing outstanding debt, minus mortgage and using the debt snowball eliminate your outstanding debt(FPU Baby Step #2).

What Are Three Issues To Remember When Considering an Emergency Fund?

Three fingers, three things to remember.

1.- Determine Your Monthly Minimum Expenses.

Only calculate bills you absolutely need to pay to survive month to month.  

No going out, no fast food, no streaming services, etc.

2.- Keep Your Money Accessible.

Your first week of expenses, 1/4 of your monthly expense total, should be instantly accessible.

Your remaining first month of expenses should be accessible within a few business days. Hopefully sitting in some account generating a good passive income return like a High Yield Savings Account.

The remaining months can be slower since you already should have a job lined up after a few weeks of losing your income. If not, begin rolling the rest of your emergency fund into a more accessible place, like your regular bank’s savings account.

3.- Emergency Funds Are For Emergencies.

Replacing worn car tires isn’t an emergency. You should budget replaceable items and keep that money separate from your emergency fund.

Emergency Fund is separate from all other family funds.

What Are The Three Steps To Building An Emergency Fund?

3 simple steps to building an emergency fund.

1.- Determine Your Minimum Monthly Expenses.

Once you figure out where you are spending your money and your monthly “minimum” expenses, you can use this as a template to eliminate unnecessary costs and focus on paying down debt.

2.- Fund The Emergency Fund.

Saving for your emergency fund is involved, and Financial Peace University addresses this in two steps. The first $1,000 is your starter emergency fund. Eliminate debt(other than your mortgage), and then fund the rest of the emergency fund.  

Be patient, but also be focused.

3.- Isolate Your Emergency Fund(Mentally and Physically).

Almost all my emergency funds (months 2-6 of my 6-Month Emergency Fund) sit in a mutual fund I do not track.  

This money is out of sight, and maybe semi-annually, I check the balance against my current expenses and adjust the balance as needed.

What Are Two Characteristics That An Emergency Fund Should Have?

Two friends working together; liquid and sufficient work together for an emergency fund.

1.- Liquid.

Easily accessible. The first month’s expenses are accessible in days, and the rest of the month’s expenses are accessible before those months.

2.- Sufficient.

Yes. It will take a while for your plan to come to fruition. It took a long time to get my first $1,000. Still, once I worked on eliminating my consumer debt, I had a credit card problem, and building my next couple of grand was easier.

It felt like forever to get my first month fully funded. Still, I felt like I had achieved something: control over my money instead of having control over me.

Then, with time, I continued to build my Emergency fund till I had about 6 months of expenses put away.

Review: How Do You Build An Emergency Fund?

  1. Find your monthly expenses, then determine your minimum Expenses.
  2. Grow Your Emergency Fund.
  3. Separate Your Emergency Fund From Your Regular Money.

I hope this helps. It might seem simplistic, but once you fund your emergency fund for 3-6 months of expenses, you will realize it was an achievement and, most importantly, “Do-able.”

How Do I Save More Money? – FAQ

Good Luck,

Tom

Source: Dave Ramsey’s Financial Peace University Program.

Tom, Growing His Passive Income Generators.
Myself with an interesting Bull Sculpture.
Notice: No Lambo’s. :/
Hi I’m Tom, A Blogger And A PIG Farmer.

PIG Farmer as in I grow Passive Income Generators(PIG’s).

I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks.

Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me.

My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. 

Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs.  

I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments.

Fun Fact: In my spare time, I am a Band-Dad!

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