Why a $1000 Emergency Fund Just Won’t Cut It

A $1000 emergency fund isn’t going to go very far in the grand scheme of things.  Yes, if you get a flat tire or something unexpected comes up, that $1000 comes in handy but if you need a new hot water heater or have a major disaster, $1000 is probably not going to cut it.  Not only that but ER visits are even costlier than they were just 4 years ago and the average cost is around $1900 according to CNN Money.
The truth is, you don’t want to be reaching for a credit card or have to take out a loan if a huge emergency takes place.  You want to be able to pay for that emergency and not have to worry about putting food on the table.  You want to be able to pay for an emergency without having to worry about your bank account and not being able to pay for your every day expenses.  You need to have an emergency fund and it needs to have 3-6 months of expenses.
The average US home spends about $57,000 a year, according to the US Department of labor.  That means that the average US home needs a 6 months emergency fund made up of approximately $28,500.   According to a 2017 survey by GOBankingRate more than half the US population has $1000 or less in savings.  The Federal Reserve released a study in 2017 that says 70% of Americans believe they are doing well financially and yet 40% say they don’t have enough to cover a $400 emergency.
Did you know if you get laid off you would only receive about 60% of your current income through unemployment?  How would you make up that additional 40%?  What would you cut out of your life?    Not only that but you can only be on unemployment for a specific period of time and once that time is up, if you don’t have a job lined up, it may be difficult to get an extension.  Did you know that most people who end up needing disability and are unable to work, usually end up being denied for years and having to repeatedly appeal to the system to get approval?  Very rarely will someone be approved right away.
Emergency funds are not just there for the one time emergency expense but also for the more long term emergencies and various life changes such as getting married, moving, pregnancy, maternity leave, medical leave, extended job loss, etc.
When my husband and I were first married we made the decision to move to Boston.  I was unemployed for a month before I got a new job.  I didn’t get severance because I left my job willingly.  If we hadn’t had money in the bank and my husbands job hadn’t started when it did, we could have been in a financial mess.  But we weren’t.
When I was pregnant with my first daughter I was hospitalized with serious dehydration and nausea.  I was unable to work for about 2 week and during that time I had very limited vacation/personal/sick time.  Because I used that time during my pregnancy I basically planned on taking unpaid maternity leave.  3 months with no income.  Again, we could have been in a mess financially but we weren’t because we had minimal debt and had put away money into savings.
I want to encourage you if you don’t currently have a savings account or an emergency fund to please start putting money away.  Stop the cycle of debt, stop reaching for your credit card and start saving for emergencies so that the unexpected expense no longer derails your budget and you start controlling how your money is spent.