Emergency Fund: More Important Now Than It Has Ever Been
What exactly is an emergency fund?
An emergency fund is simply money placed aside to deal with life's unforeseen events. If you lose your work or need to pay for something unexpected, the money will allow you to live for a few months without getting into debt.
But really, how much money should I have in my emergency fund?
Well, according to financial experts, you should have three to six months’ worth of living expenditures in your account. It's best to save for many months at a time, but if that seems unattainable or overwhelming, set a target that would likely cover some of the more regular expenses.
The most reliable strategy to achieve most goals is to make a plan and stick to it. Open an account that can't be accessed with your debit card, such as a savings account that can only be accessed online. Automate transfers from your primary bank account to this designated account to coincide with your paydays, so you won't notice the money in your primary account.
It may be tempting to spend the money for a vacation, to pay off large debts, to place a down payment on a new home, to fund an extravagant wedding, or for any other significant expense that arises. That's why you should always make a list of your fund's allowed expenses. The whole goal of having an emergency fund is to avoid having to add to your debt or struggle to come up with money at the last minute. You want to be able to concentrate on the situation rather than soliciting funds to deal with it.
Although living within your means can be difficult, you'll be glad you did when that rainy day comes and the overall impact on your financial well-being is modest.
