Expert financial planners advise that everyone has an emergency fund- how exactly should you start saving, and how much?
Those who are smart about their finances have an emergency fund stashed away somewhere- the point of an emergency savings account is to have access to funds in case something goes wrong. Life happens. Bad luck or some kind of misfortune will befall us all at some point, and having an emergency fund for such situations can protect you from incurring an unmanageable amount of credit card debt.
Experts suggest having approximately three months worth of expenses (rent, car insurance, mortgage payments, etc.) in an emergency fund, although more is better.
It’s important to keep in mind what constitutes an emergency- tropical vacations abroad don’t count, and neither do tickets to that concert or play, or that designer handbag you saw in Vouge and feel like you need.
- Your car is totaled or needs expensive repairs
Having independent transportation is often a necessity. You have to be able to get to and from work, drive the kids to school and soccer practice, and make runs to the grocery store. You’re too busy to lose your method of transportation, and sometimes, accidents happen. Things also go wrong with cars all the time- new tires, dents and scratches, timing belts…You can avoid huge amounts of credit card debt or taking out a loan by having an emergency savings account handy for such occurrences.
- You’re fired, laid off, or otherwise out of a job
In the event a business goes through hard times, one of the first area they look to make budget cuts is employee pay. Whether you are laid off, pink slipped, have hours cut from your schedule, or have resigned by choice, an emergency fund can help sustain you while you look for another job and have no income. That way, you won’t worry about paying your bills while you’re already stressing about writing cover letters and updating your resume.
- You have unexpected medical or dental expenses
Nobody plans to be sick or injured. Nobody gets a root canal because it’s fun. But sometimes it happens- from taking a tumble down the stairs and breaking your leg, to expensive medications or dental necessities, these problems must be taken care of. Don’t deny yourself medical or dental care you need because you can’t afford it or don’t want to take on the debt. If you have an emergency fund, you’ll be able to access a line of cash in such an event.
- Your home needs repairs
That huge thunderstorm knocked down a tree, which fell on top of your house. Luckily, nobody was in your residence at the time- but now you have to pay to have the tree removed and to have your home repaired. Owning a home means dealing with upkeep, and unexpected emergencies and repairs pop up all the time. Natural disasters, kitchen fires- an emergency reserve of cash for these types of situations would be incredibly useful to avoid using credit to make the necessary repairs.
An emergency fund is a smart financial move- unexpected expenses and emergencies are scary, stressful, and can be horrible for your financial health.