An emergency fund is money that is set aside to cover any unexpected events, such as losing your job. Experts recommend that you have three to six months of living expenses and salary saved up. Remember, this will be different for everyone because of income level and personal preferences. This money should not be for paying off debt, going on vacation, or buying a house. Create a list of acceptable expenses your emergency fund can go towards such as medical bills, natural disasters, and identity theft.
Uses for Your Emergency Fund
- Job loss
- Sick/hospital costs
- Avoid credit card debt.
- Maintain your household.
- Reduction of stress and financial burdens on yourself
You do not want to go into debt for a cost you cannot avoid, which is where the emergency fund comes into play. It is important to be financially prepared because life will throw a curveball at you and there is the possibility of an unexpected expense that you have to deal with.
This topic is not the most enjoyable, but it’s important and necessary. An emergency fund provides you with reassurance that will reduce stress in case of an unexpected occurrence. Saving up that much money can seem overwhelming at first, so start by saving a few dollars each week to build up over time.