Emergency funds for many people consist of between three- and six months’ worth of expenses, although the amount you choose and can save will depend on your financial situation. As a minimum, a suggested amount is around $500, which in most cases will cover unexpected costs and allow you to be able to afford the necessities.
In this article, you will find out what an emergency fund is, how having one can help you, how much to aim to save and how you can begin to set up your own.
What is an Emergency Fund?
An emergency fund is an amount of money set aside to have adequate funds to cover future, unexpected expenses if needed. The main advantage is if you lose your job or are otherwise short of money, your emergency fund will provide you with enough money to prevent you from getting into debt or being unable to pay.
Why are Emergency Funds Helpful?
An emergency fund should be able to cover any necessary but unpredictable expenses which may occur and save you from struggling for enough money to pay for it. This can include medical expenses, job loss and home appliance breakdown. No one can predict when the unthinkable may happen. An emergency fund could be thought of as a financial backup for when these unexpected payments arise and can provide reassurance in that if they ever do you have money set aside in your emergency fund to cover yourself for an unexpected payment or situation.
How Much Should I Keep in My Emergency Fund?
The minimum suggested amount is $500, although the amount you will need to save is going to vary depending on your expenses and your current situation. Even the smallest amount can help you out if you get into financial difficulties, so it is important that you get started on a fund – even if it feels too intimidating or unrealistic to save any money right now, you can still contribute small amounts as often as possible.
Where is The Best Place to Keep your Emergency Fund?
The best place for your emergency fund to be kept is in a high-yield savings account, which will draw interest and increase your fund over time, as well as allow for quick and easy access to your money. There are different high-yield savings accounts, so make sure to research your options and find one that suits you and your needs the best.
Keeping your emergency fund account separate from your everyday bank account is vital to ensure your savings remain where they need to be and cannot be accessed on a whim. While having fast and easy access to your fund is important to ensure you are able to use it when needed, it is also vital that you are not tempted to use the money for anything else.
How Can I Start to Save Money for My Emergency Fund?
Setting a goal for yourself can help you to prioritize your savings and keep you motivated to continue. If saving feels difficult, having a series of smaller, realistic goals to reach as and when you can, will help you to break up your bigger goals for your emergency fund and make the task of saving easier and less intimidating.
Setting up automatic savings is a helpful way of ensuring some money is going into your emergency fund every time you get paid. Whether through an app or your bank, setting up an automatic transfer from your earnings to your fund is a great way to prioritize your savings. It can be as little or as large an amount as you can spare – the important thing is that your funds are building up.
Will a Budget Help?
Taking a look at your current finances is a good place to start when beginning to save money. If you have active subscriptions, you no longer use, or find that you tend to spend more money in a particular area, it may be worth identifying these and cutting down what you can. From this point, you can begin to think about setting budgets for spending.
Creating a realistic, sensible budget you know you will be able to stick to is a great way of ensuring you are able to put some money aside each month – no matter how small. Your emergency fund can be built up over a while and being able to put a specific amount away each month will help you to stay organized and on top of your financial situation.
Keeping track of your fund is another way to make sure it is growing and capable of helping you when you need it.
It is especially important to note any expenses paid using your emergency fund and ensure to replenish your emergency fund back up as soon as you can do so.
Most people benefit from having an emergency fund, after reading this article you now know whether you could benefit from one too.