Every home should make a budget and every budget should include an emergency fund. As a general rule a budget starts with the following essential categories (in roughly this order):
Food
Shelter (rent or mortgage)
Utilities (power, water and garbage only)
Clothing
Transportation
Emergency Fund
Note, high speed internet is not a utility. Cable tv is not a utility. While I agee both are very important to any home, the basics are critical. Can you eat and stay out of the cold when its freezing? The emergency fund is needed as insurance so those needs can always be met.
After budgeting your estimated essentials for the month, next budget a set amount every month to go into your emergency fund. A fully funded emergency fund for a typical home should be between $1,000 to $2,000. If you rent, $1,000 might do just fine. If you own a home, $2,000 might be more realistic. This is because a major house emergency like heating going out in the winter will likely be covered by your landlord if you rent but could cost you thousands if you have to replace your home HVAC system. $1,000 also is a good chunk of any major car repair. It wont necessarilly be enough to cover ALL of you unexpected expense but hopefully enough of it so you can manage with a few tight months to pull out of it.
How much money you put aside each month for the emergency fund is up to you but I recommend no less than $100 a month as that would take you a full year to build up $1,200.
Bills, entertainment, and everything else come after you budget for your essentials. While it is never good to avoid paying a bill, that emergency fund is as important as paying the rent. If you cant afford to pay the rent, feed yourself, keep the lights on, and plan for emergencies, you definately cant afford to pay on a credit card or go out to the movies.
Use the emergency fund only for essential emergencies (i.e. to fix a leaking toilet, fix the hvac system, or fix the car’s transmission.). For other home repairs that are not emergencies, we will build another fund for that after the emergency fund is fully funded.
Household Manager 