Life throws things at us when we least expect it. It may be an illness, a car accident, or even a lay-off from your job. When life throws you an unexpected curve, it’s likely to cost you money.
This is why you need an emergency fund. Everyone should have at least three to six months of living expenses in a savings account that is reasonably easy to get to.
Saving up the money for your emergency funds is easier than you might expect. Set a budget and determine how much you can put into a savings account. Until you have reached your savings goal of having three to six months of expenses in your savings account, save every extra dime that you can lay your hands on – even if this means not going out to a nice dinner or seeing a movie. Getting your emergency fund saved should be your highest priority.
Once you have your emergency fund, preferably in an interest-bearing pass book savings account, make sure that you leave it alone. Remember, it is only for emergencies. Needing to buy a new dress for a date is not an
Needing to pay for car repairs, however, is an emergency. Really think long and hard before dipping into your emergency fund! When you must use your emergency fund, make sure that you replace the withdrawal as quickly as possible. This will again be your first priority until the fund is replenished.
This may mean that you will have to really tighten your belt, and forgo the dinners and movies again – for a while. But when you have an emergency, you will be thankful that you did save the funds, and you will realize just how important doing so really was.
Your emergency savings should not be invested in the stock market or even a certificate of deposit. It needs to be readily accessible in a savings account or money market fund. If possible, get a debit card for that account, in the event that your emergency occurs outside of banking hours.
However, use caution, and put that debit card away – don’t use it unless there is an emergency!