Why Emergency Fund Matters

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What is an emergency fund? An emergency fund is money you have set aside to pay for any unexpected expenses. Unexpected expenses would include:

  • Medical bills
  • Home appliance replacement or repair
  • Emergency home repairs
  • Emergency car repairs
  • Unplanned travel
Why is an Emergency Fund Necessary?

Having an emergency fund is necessary because it creates a financial buffer for you. This will help you stay afloat in a time of need without relying on credit cards or taking high-interest loans. It is also equally important to have an emergency fund when you’re in debt because having an emergency fund will help you avoid taking another loan. After all, the only way to climb out of debt easily is to find another way to avoid going further into debt.

How Much Should I Set Aside?

The best way to build your emergency fund is to start small. Start with $500 at least. From there, start working your way up. But the most recommended amount is a fund that is enough to cover at least half a year of your living expenses. This way, if ever you lose your job, you will have sufficient money to cover your needs while seeking other employment.

Other Benefits of Having an Emergency Fund

Aside from a financial buffer, an emergency fund also provides other benefits. The first one is that it lowers your stress level. If you have a safety net, you won’t have to worry much when disaster strikes. Secondly, it helps you avoid spending on a whim. Since your money is in a separate account you would be less tempted to use it. Lastly, it will help you avoid making a bad financial decision.

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