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Why you need an emergency fund

Posted on: June 01, 2017 | Author: Staff

Life can change in an instant—a lost job, an accident, health issues. It can be hard enough dealing with these unexpected emergencies on their own. Add in the sudden inability to pay your expenses and it becomes easy to understand why having an emergency fund you can turn to in a time of need is crucial for everyone.

What is an emergency fund?

Simply put, it’s a fund you set aside for emergencies. It’s the safety net you can turn to in a time of unexpected need.

How can I create an emergency fund?

Creating an emergency fund requires time and discipline, but is definitely worth the effort. First you have to decide how much you need to save. Experts suggest a good emergency fund equals three to six months worth of living expenses. That’s a lot of money, so here are some steps you can take to make the process easier:

  • Open a separate savings account. Keep it completely separate from your daily account and don’t link your bank card to it.
  • Set up automated deposits. Schedule a monthly automatic payment you can afford into your emergency fund account. (This is a good thing to do with the money you may have previously been using to pay off your debts.)
  • Funnel unexpected money into the fund. Paid off all your debts and suddenly came into some cash you weren’t expecting? As fun as a spending spree would be, the wiser choice would be to deposit this money (or even just a decent portion of it) into your emergency fund.
  • Review your budget frequently. How much you need saved in the fund can change over time.
  • Only use the fund for actual emergencies. This is simple—if you use it for anything else, it won’t be there when you really need it.

When should I start an emergency fund?

Today. Emergencies aren’t something that only happen in the distant future. They can happen at any time and the best time to start preparing for them is right this moment.

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