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Cash First: Having an Emergency Fund

Having an emergency fund is typically not the first goal that comes to mind when you think about your financial goals and that’s probably because financing an emergency isn’t a typical goal. When we think of goals, we’re much more likely to think along the lines of dreams than of emergencies. We think about owning a home, going on a fun vacation, buying a fancy car, paying for a joyful wedding, or finally retiring. In the midst of those things however, life happens. A major appliance breaks and needs to be replaced, or a medical emergency arises. We get into a fender bender or need a new roof. Emergencies are, by definition, events that pose a risk to us. With that in mind, setting up an emergency fund should take precedence when it comes to prioritizing our savings.


In addition to setting aside cash to pay for a new fridge, it’s also important to consider periodic life transitions that may require additional funds such as job changes. The Baby Boomer generation held an average of 12.2 jobs during the course of their careers.[1] When you compare that with a recent Gallup survey that found that 21% of millennials said they’d changed jobs within the past year – a number more than three times that of non-millennials – there’s a pretty good chance that the latest generation to enter the workforce will change jobs often. [2] This is important because job transitions are not always smooth and timely, nor are they always by choice. With that in mind, how much should you have?


A good rule of thumb is three times your monthly necessary expenses in cash if you work in a fairly stable industry. When calculating your monthly expenses, you shouldn’t include savings or discretionary spending in this number as you probably wouldn’t be saving or going on lavish vacations if you were experiencing unemployment. If you work in a highly volatile industry that has a greater chance of employee turnover, then you may want to up that amount to six times your monthly expenses. While this may initially seem like a large sum, like saving for so many other financial goals the first step is to simply start. Save what you can and work towards building up your emergency fund over time. That way, when life hands you lemons, you won’t have to sweat it.


[1] “NUMBER OF JOBS, LABOR MARKET EXPERIENCE, AND EARNINGS GROWTH: RESULTS FROM A NATIONAL LONGITUDINAL SURVEY.” U.S. Department of Labor. U.S. Bureau of Labor Statistics, August 22, 2019. https://www.bls.gov/news.release/pdf/nlsoy.pdf.

[2] Adkins, Amy. “Millennials: The Job-Hopping Generation.” Gallup.com. Gallup, December 16, 2019. https://www.gallup.com/workplace/231587/millennials-job-hopping-generation.aspx.

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