Why an emergency fund is more important than ever

What is an Emergency Fund?

An Emergency Fund is money that has been saved to pay for unexpected circumstances. This money will provide you with enough funds to cover your expenses for a few months in the event that you lose your job or need to pay unexpected bills.

It’s like an insurance policy. Instead of paying premiums to a company you are actually paying money you can use later. If an unfortunate event occurs, the cash can be accessed quickly.

Calculating an Amount

Banks and financial professionals recommend that you save at least three months of your salary for an emergency fund. This will ensure that you have enough money to live on until you find a replacement job. The amount you receive will vary depending on your income and preferences.

Begin by taking a look at your monthly living expenses. Add up the monthly expenses for mortgage, rent, utilities, groceries, and vehicle repairs. At least three months worth of living expenses should be covered. You can probably have more, such as up to six months.

You may be able, if you live in a household with two incomes and it is unlikely that both income earners are unemployed at the same time, to get financial help from a family member who is financially stable. You may be able get by with just the minimum if you have insurance that covers you in case of an emergency. Everyone should save at least some money for unexpected expenses.

Staying true to your goals

It is important to have a plan and stick to it in order to reach your goals. You can open an account that cannot be accessed using your debit card. For example, an online-only eSavings accounts.

To match your paydays, automate transfers to the designated account from your primary banking account.

You can save enough money in your liquid account to transfer it to high-yield savings accounts or short-term bonds. This will allow you to access the money in an emergency.

Knowing when to use it

It may seem tempting to spend the money on vacations, paying off large debts, financing a lavish wedding or other major expenses. You should make a list of expenses that you are willing to pay for your fund. You should ensure that these are real emergencies, such as unexpected medical costs, living expenses during unemployment, emergency repairs to your house due to a serious fire or furnace-type malfunction, unanticipated vet bills, vehicle repairs, and surprise tax bills.

An emergency fund’s purpose is to avoid you having to increase your debt or scramble for money in the worst cases. You want to be free to concentrate on the crisis and not raise money to pay it.