What is an emergency fund?
An emergency fund contains liquid assets (cash or the like) that can be drawn on at a moments notice for surprise expenses, loss of employment, or other unexpected costs. These kinds of withdrawals happen more frequently than you think! Just think of all of those surprise car maintenance bills, or medical expenses, or last minute necessary travel.
Why do I want this again?
When these unanticipated charges appear, they are usually accompanied with stress. Think of this account as a buffer. Avoid EXTRA stress (how will you pay for it?!) and expense (from, per say, putting it on your credit card) by having an “oopsie” or “surprise” fund that you can draw on. It will help keep you cash flow positive and in control of your finances.
How much do I need?
Something is always better than nothing, so if you can only afford to put aside a small amount each month, do it! However, you generally want to have 3-6 months of living expenses saved up somewhere separate from the checking account you use for daily life (even just a savings account will do). Regardless whether or not you are on your own or hooked to a family, you will want to save six month’s worth if you have only one source of income. If you have two separate sources of income (perhaps two people working, two jobs, or another source of income from a trust or other fund) then 3 months will generally do.
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Disclaimer: All calculators are blank and intended for you to use on your own. All posts in the “Family Finance” series are general posts of an educational nature. None of this represents specific financial advice.