Like they say in construction “Safety first”. Basically it’s an emergency fund but I like to call it safety first fund. This safety fund is your lines of defense, basically like your steel toes boots, safety gloves, and safety goggles. This will help protect you from dropping a hammer on your foot, Ouch! Metal chipping flying and hitting your eyes. This is the same concept for the safety first emergency fund. Having some line of defense will help minimize going into further debt because of unexpected events.

We need to prepare ourselves from unexpected events like job losses, pregnancy, natural disaster, and medical emergency. If any of these events occurs would you be able to financially sustain and support yourselves and families? Building your line of defense is important to prepare you for this type of events. Having a safety first fund will help keep you a float paying necessary bills like mortgage, food, gas, and etc, until you can get back on your feet and work again. The only reason you should use it is for “EMERGENCY ONLY”. So many people talk about having a safety fund, but tend to dip in it every time they want to buy something. Another excuse may be that they do not make enough money are after I pay all my bills I do not have any left over. Remember you need to control yourselves and not tap into it unless it is an emergency.

What’s the rule of thumb?

The rule of thumb is between 3-12 month of your expenses should be sufficient. I have a 12 month safety fund, but everyone situation will be different, aim for 12 month if you can. You do not want to rely on credit card for your emergency fund, with the high interest rate it’s not worth it unless you can pay it off completely every month. You can start by saving small and increasing it every so month depends on your situation. You can start $25 monthly or bi weekly if you can, then start increasing it. Talk to your HR and have them automate your saving by having them take it out every paycheck. Remember slow and steady win the race, it’s better to start small if your budget is tight, eventually your safety first fund will accumulate with time.

Where should I keep my safety first fund at?

You should keep your money in a saving account or anywhere that is liquid. Remember you’re not trying to chase huge return here so don’t try to put it in the market. The key is to keep it liquid that way when you need it you can just transfer it. There are many online saving accounts that pay decent interest rate also. Check out bankrate.com to find a reputable saving account and remember to look at any associated fees that some company may be charging. Most of the online saving account has low fee and minimum because they don’t have local branches like banks so they tend to have low fees. Having your saving account in a bank can come with high maintenance fee and a certain minimum fund you have to keep to maintain your account. Remember to look for FDIC (Federal Deposit Insurance Corp) saving accounts, that way if the bank goes under you’re insured up to $250,000.

I hope I convinced you to think safety first, because you’ll never know what will happen to you tomorrow. Knowing that you have a safety fund will give you a peace of mind. You can also focus more on socking more into your retirement account.

Do you have a safety fund already?

Do you find it hard to fund your safety fund?

How many month of expense can you cover?

Let me know your thoughts and ideas.