Everyone knows that emergency funds are an essential part of financial planning. But what exactly do you need to know? In this article, we’ll answer all your questions about emergency funds and how they can help you achieve your goals. Think of an emergency fund as money you keep in a savings account just in case something comes up — like a job loss or sudden car repair — that makes it difficult for you to meet expenses right away. That way, even if the unexpected happens, you won’t be completely left high and dry. Here are some ideas on how to get started and build an emergency fund faster.
What is an emergency fund?
An emergency fund is money you set aside for unexpected expenses, like a car repair or a job loss. It’s best to have a small amount — $1,000 would be a good starting point — but you can start with as much as you want. Why? Because the larger your emergency fund is, the longer it will last you and the less likely you are to dip into it. In other words, an emergency fund is a way to protect yourself from a common source of financial stress. It should be enough to get you through some unexpected expenses, like a job loss or a car repair. How much you set aside for an emergency fund depends on your situation and your risk tolerance.
How much do you need to save for an emergency fund?
There’s no set rule — you can set aside as little as $500 and as much as you want. However, you can use this general guideline to determine how much to put aside: Your monthly expenses, plus 10%. Some people choose to keep their emergency fund as a separate account and make only small monthly deposits into it. Others choose to include their emergency fund in their savings or investment account. This can be fine if you choose a low-risk investment option, so your money doesn’t lose much value. However, if your budget is tight or you have a high risk tolerance, you may want to keep your emergency fund separate.
Sticking to a monthly goal: The key to building an emergency fund
Setting a monthly goal is key to building an emergency fund. This will help you stay on track and make sure you’re saving regularly. And monthly goals don’t have to be big chunks of money. You can choose any amount that works for you, such as $100, $200 or $300. A monthly goal should be easy for you to reach. Yes, you want to save as much as possible. But you don’t want to make it so hard that you don’t actually save anything.
Summary
An emergency fund is money you keep in a savings account just in case something comes up — like a job loss or sudden car repair — that makes it difficult for you to meet expenses right away. You can set aside as little as $500 or as much as you want, but it should last you at least three months. If you can’t put aside money regularly, use a budget or look into a financial aid option such as auko. You can also choose to keep your emergency fund separate from your savings account, but it’s usually safer to keep it in the same place as your savings. Sticking to a monthly goal will help you stay on track and make sure you’re saving regularly. Monthly goals don’t have to be big chunks of money. You can choose any amount that works for you, such as $100, $200 or $300.
