Emergency fund philosophy - what is an emergency?

I have a good sized emergency fund. In order to come up with my target number I had to ask myself: What is an emergency? How much do I need?

I consider the following a financial emergency:

- job loss
- medical care
- car repairs
- house repairs
- emergency last minute travel

From that list I come up with an amount of money to cover each category. I total them to come up with the target number. In my case the total was $10,000.

I use ING Direct savings accounts to put my money for each type of emergency. My monthly contributions are divided among them until each goal is reached. At this point they are all funded except my target for job loss (the largest one!).

I'm almost there! I'm considering doubling the target once I fully fund retirement and still have more to save. With 20,000 I could cover nearly 1 year with 0 income. I really like the sound of that!

Using the above breakdown will help you find a target number that makes you feel secure. Create your target and get started with that first dollar today! It's hard to explain the stability you feel when you have a good buffer.