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Never Be Without an Emergency Fund

Squirrels do something funny in the fall, they collect up acorns and seeds for the winter. They know that the pickings will be slim come the snow and so they save up now to help them weather the leaner times. While we can’t time emergencies as well as squirrels can time winter, we have to know that emergencies lurk around every corner. Whether it’s the loss of a job, a car accident, or just an emergency trip to the hospital for a deep cut – we know emergencies happen.

That’s why a quote like this surprised me about the recent furloughing of FAA workers [3] (which ended earlier this month):

“It really is scary,” said Michael MacDonald, a 54-year-old Federal Aviation Administration engineer who lives outside of Boston. “For one week, you think OK, we can handle one week. But now the reality is starting to set in — this is going to take six weeks or more.”

This underscores the importance of an emergency fund [4]. The classic “emergency” we always think of is when you lose your job. In these last few years, we’ve seen unemployment figures stay much higher than we’ve seen in a long time. A lot of people are out of work and their prospects of finding work looks grim. We’ve had folks receiving unemployment for up to 99 weeks, nearly two years, and for those folks, an emergency fund is nice but it only softens an already heavy blow.

However, for folks like MacDonald, you weren’t fired. You were furloughed. If you had a six month emergency fund, which most folks consider the minimum, six weeks would be a concern but not something labeled “scary.” I don’t want to get too focused on an individual, everyone’s personal situation is different, but the reality is that this can happen to anyone. You can be furloughed, fired, whatever – but until you are, bolster up your emergency fund. (It’s not all bad, Steve Alexander is also quoted in the story and he’s saved up over a year).

Put it in an online savings account [5], adjust it as necessary, but just make sure you have something to help weather these circumstances (which, for FAA workers, wasn’t that much longer after the article – it ended early last week).