Why Having an Emergency Fund is Non-Negotiable
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We all know that life is unpredictable. No matter how well you plan or how much you save, there’s always the potential for an emergency expense to pop up out of nowhere. A flat tire, sudden illness, a much-needed vacation, a pet that needs to go to the vet, the list goes on and on.
But that’s why having an emergency fund is so crucial—a cache of cash that you can tap into when those unexpected bills come a-knocking. No one wants to find themselves in a bind because they didn’t see it coming. So let us be good friends and teach you why you should get started before shit hits the fan.
In this blog post, we’ll discuss what an emergency fund is, the pros of having one, and how to get started building yours. We’ll also discuss a few things you should avoid doing with your emergency fund- like buying that new 85inch TV or a random new car. The goal here is simple, we want you to be proactive about saving for the future, so your future self can just thank you l8ter.
What Is An Emergency Fund
An emergency fund is a savings account where you set aside cash for unanticipated expenses. The reason could be anything from a last-minute medical bill, a broken-down car, or a surprise job loss. Essentially, it’s money that you can dip into when things go wrong, so you’re not left high and dry financially.
How much is enough for starting one?
While there’s no magic number for how much you should aim to have in your emergency fund, most financial experts recommend saving enough to cover three to six months’ worth of living expenses. However, we recommend starting low with $500 and then $1,000. It may seem daunting initially, but remember that you can start small and gradually build your savings over time. The key here is just to get started and remain consistent.
Pros of having an Emergency Fund?
There are many benefits to having an emergency fund, but the most prominent fact is that you won’t have to rely on credit cards, or personal loans. Nor will you have to live paycheck to paycheck.
Suppose you’ve had to put an unexpected expense on a credit card. In that case, you know how quickly those balances can spiral out of control—not to mention the high-interest rates you’ll be paying if you can’t pay off your credit immediately, preferably by the end of each month. But life happens and sometimes we only can do the minimal.
With an emergency fund, you won’t have to worry about stuff like this. You’ll actually be less stressed and might be able to see the light at the end of the tunnel.
Because, Let’s face it: financial stress is natural and affects our physical and mental health.
An emergency fund gives you peace of mind knowing that you’re prepared for whatever life throws. If you have that already, you’ll also be less likely to dip into retirement savings. Regardless, these are just a few advantages of having one.
How Do I Get Started?
The first step is simple; it deals with figuring out how much money you need to set aside each month to reach your goal—whether it’s $50, $100, or more. If you have established a spending plan, you should have this number. If not, we recommend using the 50-30-20 method to get it.
Once you have that number, it’s time to set up a separate high-yield savings account (preferably one with no fees) and make regular contributions until you reach your goal amount. If you’re unable to get that, then a second checking account might be your ally.
Things to Avoid With An Emergency Fund
We are going to say this once! An emergency fund is for an EMERGENCY! Use it for nothing else. Just because you want something doesn’t mean it’s an emergency! An unexpected car repair is an example of an actual emergency; a new Chanel bag is not. If you dip into your emergency fund for non-emergency purchases, you’ll continue to be in the cycle of debt.
The other part you need to understand is that once an emergency is needed and you go to take the money out, make sure once it is done that you- put the money back!! Start small until its back to the original amount. Then, work on maintaining it.
Don’t Put All Your Eggs In One Basket
Even if you have several thousand dollars squirreled away in your savings account, remember: it’s still susceptible to things like bank failures(Silicon Valley Bank). So even though having cash on hand is essential, don’t forget about other types of emergencies like long-term job loss or disability. For these types of situations, you’ll also need extra safety nets such as having insurance or a rainy day fund stocked with investment income.
Final Thoughts
Emergency expenses happen when we least expect them—which is why it’s so important to be prepared by having an emergency fund in place. An emergency fund is a savings account that you contribute to regularly with the express purpose of having cash available should something come up unexpectedly.
Financial experts recommend aiming for three-to-six months’ worth of living expenses. Still, even $1,000 can go a long way toward helping cover unexpected costs without putting yourself into debt or living pay check to paycheck.
Start building your fund today by identifying the money you need to set aside each month. You can do this by setting up automatic contributions from your paycheck straight into your high-yield savings account; before long, you’ll have the peace of mind of knowing that should something come up unexpectedly, you’re covered!
