Personal finance guru Suze Orman believes that we all should have eight months of cash stashed away in an "emergency" fund. That's right - eight months. When I mention this to people who ask me how much they should have set aside for emergencies, they always say, "Who the heck has that much money?
Few people have that much money all at once, of course, but with a little sacrifice, many families really can put that much money away over time with a regular savings plan. Why have an emergency savings account at all? Can't I just use credit cards if I face an unexpected expense? Or can't I just tap my home equity line of credit? Maybe. But in a time when lenders are canceling credit cards, reducing credit limits and canceling home equity lines of credit, a stash of cash can provide an invaluable buffer against financial ruin. My husband and I found this out first hand in November, when one of our children was in a horrible accident and was life-flighted to the hospital. Even with medical insurance, the medical bills started to pile up. For the first time in my life, I could see clearly how an unexpected medical expense can engulf a family in financial crisis and even lead to bankruptcy. But that won't happen to us. We had our emergency savings account - the one we'd been paying in to for years. The one we fed consistently each payday, even if it meant not going out to eat to a restaurant or putting off the purchase of something we wanted to buy. It's the account that both my husband and I understood could never be touched until we encountered a true emergency. Well, that time came and having that money made a terrible situation more bearable. It allowed us to focus on our child's recovery, and not pay so much attention to the piles of medical bills that arrived almost daily for weeks. Even in these bad economic times, I encourage you, if you haven't already, to open an emergency savings account. Start small like we did. Put some amount in there every time you get paid. Vow to leave that money alone. Do it for you and for your family and because someday, it could make the difference between getting consumed by the bad times and getting through them.