Why you NEED an Emergency Fund

While it might not be the sexiest or flashiest financial goal, an Emergency Fund is the foundation your entire financial health is built upon.

What is an Emergency Fund?

An emergency fund is a stockpile of money that is kept safe yet easily accessible in the event of… you guessed it, an emergency!

This might be anything from a broken washing mashing to major house repairs, or a sudden drop in income due to illness or job loss. Basically, anything that appears out of nowhere and costs you money.

Why do you need an Emergency Fund?

Since you never know when anything may go wrong, it’s critical to have money put aside to meet any unexpected bills.

Having emergency funds on hand allows you to cope with these issues with less chance of going into financial difficulties.

The fund essentially serves as a safety net, helping you to weather any financial storms with reduced danger of incurring issue debt. When things go wrong, it’s all too tempting to fall back on your credit card or a high-interest loan to get by.

How much should I save?

No one enjoys putting their hard-earned money into a “doom and gloom” savings account, but it’s critical to have an adequate amount in your emergency fund.

Although the actual amount will vary depending on your circumstances, financial experts recommend having enough money in your emergency fund to cover three months’ worth of living costs.

This implies that if you unexpectedly lose your job, you’ll have enough money to meet your monthly costs (such as rent, utilities, groceries & minimum debt payments) until you can hopefully find another employment.

(Necessary expenses x 3 months = Emergency Fund)

Your emergency fund is a life raft that can keep you afloat in the event of a crisis.

How to setup an Emergency Fund

It’s never too late to start saving for an emergency fund, whether you’re low on cash or don’t have one at all.

To begin, you’ll need to determine how much money you’ll need in your emergency fund. This is your savings target.

Once you’ve set this goal, you’ll need to figure out how much you can afford to put aside each month to begin slowly building up your emergency fund. If you can split the process down into more manageable bits, it always feels simpler!

Where should my emergency fund be?

Your emergency money should be kept in a different account from your regular bank account, so you don’t get tempted to use it.

You’ll want a high-yield account if possible. This entails opening a savings account with a high interest rate so that you may earn a small return on your money.

Saving up for an Emergency Fund requires you to be intentional, focused and to live below your means. This is the exact same financial muscle it takes to ultimately build wealth. So when you’re finally done with this goal, use those same mad money muscles to build something on the foundation you just laid down.