Why an emergency fund is important

The last two nights my wife and I have been amazed at the absolute devastation hurricane Katrina has brought and how it has affected those living in its wake. Here in Texas we have had an influx of refugees waiting out the mess and we are constantly reminded of the importance of an emergency fund while hearing the accounts of those that fled on the nightly news. Most had jobs, but are unable to return or worse, there is nothing to go back to. All of the interviewees are deeply concerned how they will make it because they have no savings to live on. These are your typical middle-income families with children that are staying in cheap hotels or with relatives for the time being.

I simply couldn’t imagine being in this situation, nor would I ever want to be. This example really drives home the importance of an emergency fund and further enforces our determination to save for the unknown.

Our plan is to have 3 months worth of expenses saved in a safe, liquid account. Currently we have amassed $4,427.12 (EmigrantDirect + ING Direct accounts) since starting back in January, roughly about 1.5 months worth of expenses. We should have around $12,000 saved by the end of the first quarter of 2006. At that time we will look at investing this money into CDs by laddering them. After we pay down the student loan #2 and second mortgage we’ll come back and beef up our emergency savings to 6 months worth of expenses.