As I mentioned back when we killed off our non-mortgage debt, our next basic step was funding a real emergency savings account. As I’ve seen suggested just about everywhere, somewhere in that mythical 3- to 6- to 12-month worth of emergency cash was the goal.
The first thing I needed to do was figure out what the typical month should be worth, so sat down with our last year worth of monthly budgets and began adding up all the must-have items. In other words, get rid of those things that we wouldn’t be doing if we found ourselves in an emergency setting. Think things like dining out. Or magazine subscriptions. Or vacation funding. That sort of thing. Tack on 5% — just to adjust for inflation — and multiply by the number of months wanted. In the end, six months sounded like a good middle ground, and we began funneling my side income and any extra cash previously going towards debt into our ING savings account.
And again, it is amazing what focus, hard work, and a little luck can do. Because four months later we have a fully funded emergency fund for those six months. Plus another twelve months+ on top of that. A certain portion of that will probably be set aside for next year’s taxes, but at this point we track it as a savings subcategory called ‘Wow! Funds‘. Because, wow, things are really changing for us right now.
Next money step? Think it’s time to see about getting our little five-year-old future education taken care of…
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