$1,000 saved is more important than your 6-month emergency fund
How a Quick fund can keep you out of trouble.
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Emergency fund
An emergency fund is an amount you have saved up based on your monthly spending.
Experts typically recommend you have enough to cover three to six months’ worth of expenses.
Meaning if on an average month you spend $1,000, you should have between $3,000–$6,000.
That amount is set aside in case of losing your job, big medical expenses, or something you are certain that you cannot postpone or live without.
Quick fund
A quick fund (that is how I call it), is a fund for quick emergencies like unexpected medical appointments, unexpected fees or charges, home or car repairs, fixing your phone screen, etc.
This fund is made to be more flexible, help you with the expenses that you typically don’t budget.
For example, nobody budgets a new screen for their phone but those situations happen. If you respect the emergency fund rule ‘ Only touch it for things you cannot postpone or live without’, you know that you cannot use it to change your phone screen, so where do we get that money from?
This is why having a quick fund is so important. It helps you not only respect your budget but also your emergency fund. A quick fund gives you the flexibility to cover any ‘normal’ unexpected expense that was not budgeted for that month.
How big should it be?
For most people $500–$1,000 is more than enough. But for a rule of thumb, I like to have a 1:1 ratio using my most expensive kitchen appliance.
In my case, my oven costs $800. So the minimum I try to keep in my quick fund is $800.
Conclusion:
Having a 3–6 months emergency fund is good, but I would recommend using it only in bad circumstances like losing your job or being unable to work due to a disease.
Your quick fund on the other hand is more flexible, be ok with using it for a new pair of running shoes, a new mouse, even a gift if that person is really special to you.
I do think before creating an emergency fund you should create a quick fund. Because having it will help you stick to your budget and respect your emergency fund.
