What is the difference between an Emergency and a Survival Fund? And do you need both?
An Emergency Fund is cash specifically saved for unplanned events considered an “emergency.” Examples: Your car needs a new transmission to drive to work in downtown Austin; your HVAC breaks down in Austin’s August heat or your refrigerator dies on Thanksgiving Day right before the in-laws arrive. This cash should be quickly available and will keep you out of debt. No credit cards are required! We recommend a family save at least $3,000, while a single person saves $1,500.
A larger problem is when you lose your job unexpectantly. This is more than an emergency; you are now in “survival” mode. Hopefully, you would cut back on dining out, vacations and the gym membership, which are simply discretionary expenses. But rent, food, gas, utilities, cell phone and car payments are nondiscretionary and must be paid if you are employed or not. This is when your Survival Fund, which is three months’ worth of cash to live on, becomes a lifesaver.
How much do you need in a Survival Fund? Add up all your monthly “must pay” expenses and then multiply by three. Place the money in a savings account for easy access. It will take time to build up to the amount required, but by contributing each month, you will get there.
Need other financial tips?
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