Why an Emergency Fund is More Important Than Ever

What is an Emergency Fund?

An emergency fund essentially consists of money that’s been put aside to deal with unexpected events. You can live on the money for a few more months if you lose your job, or to pay for an unexpected expense.

You can think of it as an insurance policy. You are not paying premiums for a company. Instead, you are paying yourself money that can be used at a later time. You can access the cash quickly and easily in case of an unfortunate event.

How to determine an amount

According to financial experts and banks, you should have at least three months worth of salary saved in an emergency fund. If you lose your job, you will have enough money to cover the cost of living for a few months while you search for replacement work. The amount will depend on your income level and your preferences.

Start by adding up your living expenses. Start by calculating your monthly living expenses. Add up the amount you spend on rent or mortgage, utility bills, groceries and vehicle costs. You should have enough money to cover your living expenses for three to six months.

If you are in a dual-income household, and you don’t expect to have both income earners working at once, you might be able to count on financial support from a financially stable relative. Unexpected emergencies can be covered by insurance, so you might be able to live on the minimum. But everyone should be sure to save some money for any unforeseen costs.

Be true to your goals

The best way to reach your goals is to create a plan. An account that isn’t accessible with your debit card such as an online-only eSavings Account can be opened.

Automate transfer money to this account from your primary bank account. This will match up with your paydays so you don’t see any of the money.

When you have enough funds in the liquid account, you are able to transfer money to either short-term bonds, or high-yield savings, where you can still get it quickly in times of emergency.

Know When to Use It

Sometimes it may seem tempting to use the money for a vacation, paying off major debts, funding a lavish marriage, or any other large expense. It is important to have a list with acceptable expenses in your fund. Make sure they are not unexpected expenses, such as living costs in times of unemployment, sudden medical issues, repairs to your home due to a fire or serious furnace malfunction, unanticipated veterinarian bills, unexpected vehicle repairs, or tax bills.

You don’t want to be in debt, or have to find money last-minute. That is the whole purpose of an emergency fund. You want to be able focus on the problem and not trying to raise money to fix it.