Emergency Fund: What You Need to Know and Do
Managing your finances can be stressful enough, but more-so when an emergency pops up. Fortunately, there is a way to prepare for unexpected financial surprises: build up an emergency savings account.
While an emergency fund won’t solve all your money woes, it is a vital part of any financial plan and can help keep your long-term financial goals on track. Here’s what an emergency fund is and why you need one.
What is an emergency fund?
An emergency fund is an account with money set aside to cover large, unexpected expenses, such as:
- Unforeseen medical events
- Home repairs
- Major car repairs
- And — costliest of all — unemployment
Emergency funds help you in a time of need, without having to rely on credit cards or take out loans.
Why do I need an emergency fund?
The reason is simple: no one can predict what is going to happen. Emergency funds help you in a time of need, without having to rely on credit cards or take out loans. Having a dedicated emergency fund will save the day in a true emergency. With your safety net in place, these things are not a crisis, just an inconvenience.
How much should I save?
A good rule of thumb is to have enough to cover three to six months’ worth of living expenses. If you lose your job, you can use the money to pay for necessities while you find a new one.
Living expenses may include:
Rent or mortgage
Loan and credit card payments
If money is tight, you can start small – having $1,000 can help in many situations. You can build your emergency savings account over time.
How can I build an emergency fund?
You need to have a plan. The important thing is to start saving and leave it alone. You can start small, but do start.
- Determine the amount you need in your emergency account.
- Develop a budget and set a monthly savings goal.
- Move money into your emergency account automatically.
- As your income or debt changes, adjust your budget and put more money toward your emergency savings fund.
- Only use the money for true emergencies.
Where do I put my emergency fund?
Because an emergency can strike at any time, having quick access is crucial. It is also essential to have your emergency fund separate from the account you use daily, so you don’t accidentally dip into your reserves.
A Savings or Money Market Account at Texell is a good option for your emergency funds. It is federally insured, so it is safe. Plus, you can access your money quickly when needed, through withdrawal or funds transfer.