General Finance

Emergency Funds: Why Do I Need One?

Things happen in life and you should always be prepared for them! That’s right, life happens – anything from a lost job to a natural disaster. When things go wrong, expenses can begin to run high. You should always be prepared for the worst.

What is an emergency fund?

An emergency fund is a safe liquid account that you can access in case of an emergency. You should have three to six months’ worth of expenses to hold you over just in case you are without steady income for that allotted time. It’s not a savings account for you to use for a vacation. This is an account strictly set in place to protect you and your assets from not having an income.

You don’t need to have all that money at once to start an emergency fund. One big excuse I often hear is, “I don’t have a couple thousand dollars to save.” You can put some money in weekly or monthly and it doesn’t have to be a huge amount. Personally, I put $200 a month into my emergency fund and it’s getting to where I want it to be.

Why emergency funds are important:

The emergency fund provides peace of mind. It allows you to make mistakes and still have money in the bank to back you up. It’s like having a small insurance policy. You can act more confidently when investing if you have some money put away just in case things go wrong. Most advisors will recommend that you have an emergency fund as a strong base for your financial plan.

For more information, I would check out Investopedia. It’s a great source with a lot of information on basic financial matters. I would also encourage you to check The Only Investment Guide You’ll Ever Need by Andrew Tobias and The Total Money Makeover by Dave Ramsey.

I can’t stress it enough. Having an emergency fund is really important. You should always make sure you have at least a few months of expenses saved up, especially since you never know what life has waiting for you around the corner. So, make sure you save up to invest in your own peace of mind. Remember, you don’t have to do it all at once. You can save weekly, monthly, or at whichever responsible pace works for you, but still allows you to save up. Some people carry more than six months’ worth of expenses, which is fine. I personally always think you should have your money working for you, so I don’t keep a huge emergency fund. It’s all up to your preference, whatever makes you feel most secure.

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