Rounding Out Your Financial Picture: Prioritizing an Emergency Fund
One piece of my financial picture that I have been neglecting is an emergency fund. In these increasingly uncertain times, I have decided to make building an emergency fund a financial priority. Prioritizing an emergency fund means making some adjustments to my automated financial system, at least for the time being.
My modest emergency fund goal will be to save an amount equal to three months' salary. Six months' worth might be smarter, but three months' worth is a more modest initial goal, and you have to start somewhere! Here is my plan:
Reduce my 401(k) contributions to 4%, freeing up funds for my emergency fund while ensuring that I still receive the 4% company match. (Free money is free money!)
Make minimum payments on all credit accounts (credit cards, mortgage, and student loans). While the official financial advice is usually to prioritize high-interest credit accounts, temporarily prioritizing an emergency fund is better for my long-term stability and financial peace of mind.
Set up automatic deposits for a portion of my paycheck to go straight into my emergency fund savings account. Automatic deposits/contributions are the hallmark of any good financial system. Automating your finances makes your life easier and reduces your chances of deviating from your plan.
