Dave Says: Emergency funds should be kept within reach

Dear Dave,

My husband lost his job last week. The good news is we're completely debt-free, and we have a six-month emergency fund saved up. I work part-time, since we have young children, and I've been bringing home about $800 a month. Should we cut our budget down to bare bones now, or do you think we could continue living as usual for the time being since we have so much money saved?

Jayme

Dear Jayme,

I'm sorry to hear about your husband losing his job. At the same time, I'm really proud of you two for saving and preparing yourselves financially for this kind of scenario. Eight hundred dollars a month isn't bad for a part-time job, but it's not nearly enough to run a household - even one that's debt-free - when there are kids in the picture.

You should already be living on a little as possible in order to make the money in your emergency fund last as long as it can. It's beans and rice time in your house. That means no restaurants, no vacations, and no movies. In other words, no spending on anything but bare necessities until your husband finds another good job, and you guys are back on your financial feet again. Right now, your priorities are keeping the lights on, the water running, and making sure there's food in the pantry.

This is a textbook definition of an emergency, Jayme. Use your emergency fund. It's there for times just like these. But be wise, and spend as little as humanly possible. God bless you all!

-Dave

Dear Dave,

I have about $12,000 in company stock. Could I use this as my emergency fund?

Jeff

Dear Jeff,

If you want to call that $12,000 an emergency fund, that's okay. But if that's the case, I'd strongly advise cashing out the stock and putting the money in a good, easily accessible money market account - one with check-writing privileges. Stocks are long-term investments. The only purpose of an emergency fund is to have cash on hand immediately in the event of an emergency.

Specifically, an emergency fund is there to cover the unexpected expenses life throws at you from time to time. It's not an investment, and it's not designed to replace income. That's why I believe it's essential to keep your emergency fund liquid and easy to reach!

-Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.