Most of us will have to deal with an unexpected challenge at some point. It could be an emergency car repair, household appliance replacement, or an urgent medical expense.
You can't predict what will come your way, but you can prepare.
What Is an Emergency Fund?
An emergency savings fund is an account set up to cover the costs of unexpected expenses.
These accounts are designed to be used when an unexpected expense arises.
Why You Should Prioritize Your Emergency Savings
When you have money set aside to cover unplanned costs, you won’t have to find ways to pay. You can also avoid taking on more debt than necessary.
When you focus on saving money for emergencies, life’s surprises become less disruptive. You don’t have to worry as much about how you’ll pay for a car repair, or unexpected loss in pay.
How Much Money Should You Put in Your Emergency Savings?
Your current financial situation and needs play a significant role in determining how much you need to store in emergency savings. If you live in a dual-income household and have a fair amount of disposable income, you might be ok with a smaller emergency fund than someone in a single-income household.
Most financial experts will recommend saving enough to cover 3 to 6 months of living expenses, but that can be difficult.
Start small and work your way up. Something is always better than nothing. Set a goal to save $1,000 for emergencies and then continue to add to it.
Where to Keep Your Emergency Fund
Emergency savings must be accessible. A savings account at a local bank or credit union is typically a good option since the balance will earn interest and the money is easily accessible.
The most important consideration is to store your money in a safe and secure place that is easily accessible. In the event of an emergency, you don't want to have to pay fees or wait weeks to access your money.