One of the building blocks of a strong Financial Plan is your Emergency Fund: Do you have one?  If not, do not think you are immune to the financial perils that lurk out there, waiting to drain small savings and threatening to run up your high rate credit cards.

Regardless of age, these perils do lurk and your Emergency Fund does not have to be just for life’s perils.  It can also be used to grab a fantastic opportunity because of advanced planning.

I have recently seen both ends of the spectrum in my personal life: 2 fairly young family members meeting the dreaded “C” word, unable to work for an extended period (both are now wonderfully healthy, by the way) and another young family member with a chance to grab her “near perfect” job with not so “near perfect” circumstances.

What exactly is an Emergency Fund? 

According to Investopedia-  an emergency fund can be defined as, “an account used to set aside funds needed in the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major expense. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to draw from high interest debt options, such as credit cards or unsecured loans.”

How much should you be saving?

There is no exact answer. There is a traditional range of 3-6 months, and sometimes more, of your take-home pay.  Which is right for you?  Take a look at your lifestyle expenses.

1. If you have a short list of expenses such as rent and utilities with only yourself to feed, you may be fine with only a 3-month cushion. Another positive circumstance in this category is what I call the “Friends or Family Plan”. If you have people in your life you can turn to if in dire straits (parents come to mind, though not exclusively), consider yourself lucky.

2. Now say your life is a bit more complex with a mortgage or children or both, opt for the 6-month cushion.

3. One last caveat – You may need a bit more (6-9 months) if you do not have a steady paycheck. You definitely need a bit more if you are already in category 2 above.

How and when to start:

If you have zero put away, wait NO longer.  Anything you can put away is better than nothing and often, the power of saving gives you a sense of even more power and control. Do you need Starbucks 5 days a week? Can you eat lunch out one less day per week? Set a realistic monthly minimum and add more if you can. Small changes can get you well on your way.

What constitutes an Emergency?

Stay strong: that Groupon vacation offer does not constitute an emergency, no matter how low the price.  Long-term Illness? – Check.  Repair to a car that costs more than it is worth? - Check. And that “near perfect” job offer that will leave you employed only part time for 3 months? – With that Emergency Fund in place, you can go for it!

Submitted by Keri Gore

The above article is for informational and educational purposes only. Neither the information presented nor any opinion expressed constitutes a recommendation or endorsement by Gore Capital Management nor Cantella & Co., Inc. of a specific investment or the purchase or sale of any securities.