Chasing the Fionist Dream

In March 2020, COVID hit us by storm and the world locked down. Families across Israel  – including ours – and the world had one or both wage-earners furloughed or laid off. While the Israeli government paid extended unemployment benefits, no one knew how long they would last or what the future would be. 

This post is all about emergency funds. How to build one, why you need one, how big it should be. An emergency fund is your family’s lifeboat. When an unexpected large expense arises, it will keep you afloat, out of minus, in your budget, and prevent you from touching your precious investment portfolio. 

The general rule of thumb is that your emergency fund should cover three to six months of living expenses. Wherever you decide to keep it, it should be easily accessible and risk-free. Ours is in a pakam (short term savings) in the bank.  For example, if your monthly expenses run about 15K shekels on average, you should have an emergency fund between 45K and 90K. In the event that you suddenly lose your income, this will give you a buffer until you find a new source of income. If you are entitled to unemployment payments, or lost one job in a two income household, this will give you extra breathing room.

While an emergency fund is designed to cover emergencies, planning for big expected expenses is just as important.

Will you be sending your kids to camp next summer? Are you planning a family vacation? Is there a chance that you will buy a new car in the next year or three? Instead of paying in tashlumim (installments) or taking a loan and paying the bank back with interest, you can pay yourself forward with slush funds. When these expected expenses happen, you’ll be ready.

For example, a family with two kids might spend 7-12K shekels on summer camp. Instead of dreading the summer, you can put 600-1000 shekels into a pakam each month and be ready when school ends. 

The same method can be used for eventualities that you know will happen at some point in the future. For example, if you currently drive a ten year old car, you can start putting away money every month, so that when your car goes to automotive heaven in two, three or five years, you will have the money, or at least a good chunk of it, for a replacement. If you choose not to have pet insurance (we don’t) you may want to consider having a sum put aside for a vet emergency which could be a few thousand shekels. The older your pet is, the higher the chance of expensive treatment. Once you reach your target, congratulations! May your car continue to run and your pet remain healthy for many years to come. If you do not have any more slush funds you want to fill, you can use the freed up money for investments. 

When a crisis hits, having an emergency fund will allow you to focus on the logistics of solving your predicament instead of worrying about how to pay for it. 

Do you have an emergency fund? Do you have slush funds for various expected expenses?