Are Emergency Funds Necessary?


The year 2020 has taught me a lot about our personal finances and how important it is to have a pretty hefty emergency fund saved up for those rainy days, weeks or even months.

While working on our own families emergency funds we found that it was necessary to have multiple streams of income in order for us to meet all of our current and future money goals. Are you doing something that earns you passive income? If not, you need to brainstorm and decide on something that you could work on that can and will turn into passive income for you and your family.

Passive income is income that requires little to no effort to earn and maintain. The passive income that I earn stems from my Teachers Pay Teachers store. I create educational resources, budget printables and clip art that I create one time and list in my TpT store. Through my Teachers Pay Teachers store, people are able to purchase my digital items easily and no other effort is needed from myself as all of my items are digital products. There’s no manufacturing, building, making, printing, packaging and sending physical products with my passive income side hustle.

What types of emergency funds should you and your family have established?

The first emergency fund you should work towards establishing is your $1,000 emergency fund. This is your kick-starter fund. Once you have $1,000 saved up, you DO NOT touch it unless you experience a legitimate emergency. It can sound daunting to save $1,000 if you live paycheck to paycheck or if you’re not use to saving money at all. Gather items that you have around the house that are no longer being used. Sell them! Take the cash you make and throw it in a savings account or emergency fund envelope.

The second emergency fund you should work towards establishing is your 3-6 month emergency fund. Take the amount of your monthly bills and multiply that number by three and you will find the minimum amount you should have in your extended emergency fund. Through the shutdown of our economy we can easily see that a three month emergency fund may not be enough. Ideally, you should aim for a six month emergency fund. Typically, if you are follow Dave Ramsey’s principles, you don’t save for this emergency fund until you have every single cent of debt paid off. This is where I slightly disagree. I believe it’s extremely important to get any and all debt paid off as quickly as possible. However, I also believe you should work towards saving for your 3-6 month emergency fund WHILE you are paying off debt. This is the part that 2020 has taught me. It’s okay to save money while you’re in the process of paying down your debt; even if you can only save $50-$100 per month. Something is better than nothing!

I personally will be portioning my passive income by percentages since the amount I earn varies from month to month. The following is my goal for my passive income:

  • 14% toward 3-6 month emergency fund
  • 26% for taxes
  • 60% towards current debt

My plan for my passive income may change in a few months but at least I have a plan for my earnings. If you are brand new to the idea of becoming debt free and experiencing complete freedom from owing others then my one piece of advice would be this: Simply start. Start your journey today! If you fall off your journey then pick up the pieces and start again.

You can find helpful debt trackers over on my Teachers Pay Teachers shop that may provide some motivation for you when saving for your emergency funds, paying off credit card debt or saving for a down payment on a new home.

$1,000 Emergency Fund Tracker
Personalize your own Credit Card Debt Tracker