What Does an Emergency Fund Mean for You?

21 07 2010

We’ve all heard the expression before, “save your money for a rainy day“.  This couldn’t be more true because sometimes when it rains it pours.  We cannot avoid emergencies, but we can definitely be prepared for when they come.

Typically an emergency fund is a place where money is held in the expectations of an emergency.  That “place” should be in a savings or checking account.  The money should be readily accessible for immediate withdrawal, hassle-free.  We suggest setting aside three to six months of expenses in this account.

Calculating three to six months of expenses is fairly simple.  Jot down your expenses on your Monthly Budget Form and round-up all numbers to the nearest dollar (i.e. $23.92 turns to $24.00).

What counts as an emergency?  Medical bills, veterinary bills, house maintenance, car repairs, and job loss are to name a few.

If the unthinkable happens – Job Loss – your Emergency Fund will immediately kick in.  Expenses such as cable television probably should be dropped and anything else that is “extra” like eating out, or the gym membership.  Stretching your Emergency Fund to last three to six months will help you avoid any debt. 

Speaking of debt, unforeseen emergency expenses, more often than not, leave  those households without  an Emergency Fund, in debt.  The money simply isn’t there and credit cards take the place of cash.  Simply put, you cannot win when you have debt piled on your back.

C’mon, start your Emergency Fund today!  You can add as little as $5 to get the ball rolling!




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