The recent events causing widely experienced job loss has been a clear reminder of how important emergency funds are. When layoffs or other unexpected circumstances take place, having a backup fund will be what keeps the rest of your financial life going in a positive direction.
What’s an emergency fund?
An emergency fund is money you’ve set aside for unexpected expenses. This stash of money allows you to be prepared for the circumstances life throws at you. The average recommended amount to save is 3-6 months' worth of your normal living expenses, but the more the better.
When would I need an emergency fund?
You might be wondering what kind of situations an emergency fund would come in handy. While the possibilities are endless and always unforeseen, here are some examples:
- Job loss
- Medical emergency
- Car issues or accident
- Major home repair
What’s not considered an emergency?
Don’t go through the process of saving for months just to spend it on non-emergent occasions. While preparing for an emergency and planning for some rest and relaxation both require saving, you need to have different budgets for them. Here are a few examples you should budget for rather than spend your emergency fund on:
- Vacations
- Elective medical expenses (e.g. plastic surgery)
- Non-essential home upgrades
How can I start building my emergency fund?
The first step to building an emergency fund is figuring out your goal amount. After finding out what your monthly expenses are, it’s time to develop a plan to save. Store your funds in a safe place like a savings account, and stick to your plan.
This year, make it a priority to be prepared for the unexpected with an emergency fund. To get started, open a savings account with us today!
