Emergency funds are something that many people strive for, but often cannot maintain due to tight budgets or the frequent use of saved funds. According to Dave Ramsey, many families have less than $1,000 saved overall and no money in an emergency fund. It’s never too late to begin. Read more and start saving today.
Why are emergency funds important?
An emergency fund is an account specifically created for use during unplanned or crisis situations. This could be a hospital visit, a car breaking down, an unforeseen bill, a natural disaster, or a death in the family. This should be an account that is “liquid” meaning the funds are accessible and does not have penalties for withdraws or early terminations.
Who needs an emergency fund account?
An emergency fund should be a part of everyone’s financial wealth strategy. No person or family is immune from accidents, tragedy, and unforeseen circumstances.
Is this the same as savings?
No. Savings is meant to be used for retirement in the future. This fund should be completely separate from retirement funds, IRAs, 401Ks, and other savings accounts.
How much should be in my emergency fund?
Most financial experts recommend funds with 3 to 6 months of expenses. The more available within an emergency fund, the less stressful these situations are.
If you are just beginning your emergency fund journey, it makes sense to set goals by blocks of time. For example, “In 3 months, I would like to have 1 month of emergency funds saved”. This makes the goal of an emergency fund seem less intimidating and more attainable.
Where do I store and manage funds?
As mentioned above, this should be a separate account from savings and be easily accessed. Consider a savings account with the bank used for standard checking. Many banks offer easy access through online portals to move these funds when needed, which is extremely helpful during an emergency. Banks offer easy monthly transfers from checking to savings ensuring funding the emergency savings fund is a breeze. Note: be sure to work this expense into your budget.
When do I use the fund?
Set it and forget it! This fund should only be used during true emergencies. Using the emergency funds for non-essential items is not the best method for growing wealth stability. When a need does arise, only pull the amount needed to balance the budget for that month and set future months’ budgeting goals to restore these funds as quickly as possible.
Setting emergency fund goals within any budget can change the outlook of wealth for all within a family. Prioritize and have a strategic plan for funding this account within the monthly budget. In no time, you can have security and growing wealth.