Thursday, August 9, 2007

Emergency Fund targets

As I navigate the first few months of turning my finances around, I'm following the common Emergency Fund recommendation of starting with a goal of $1,000 during the debt reduction period. This will do in the short term, as I expect to reach this target in early October. Once I've done this, I'll focus most of my "extra" cash on attacking my line of credit balance, while still continuing the gradual building of my Emergency Fund. The question becomes, how much do I want in this account?

The most common recommendation for this is to have 3-6 months' expenses saved up. That represents a good solid fund, that should cover most unexpected expenses or income reduction that are likely to crop up. However, I'm currently so far away from this target that I need something more "mid-term" to focus on. I've decided on having one month's expenses comfortably covered. I've worked this out to be around $4,000, so that's the goal that I've added in the sidebar. This goal is likely at least a year out, but at least I've quantified it, and I have something to work towards.

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