The Importance of an Emergency Fund
What is an Emergency fund?
An emergency fund is an account that has money set aside in it for "rainy days" or certain dire needs or as it states in the name, emergencies.
This money is set aside for this purpose and this purpose only. It is not to be touched for thrills or fun money or vacations.
How much should you save?
Typically you want to have 3-6 months salaries' worth saved up in this account.
That sounds like a lot and it is, but keep in mind, that number can be your bare-bones expenses. If you were to lose your job your spending would be (at least it should be) different than it is when you have money consistently coming in.
The number you use to calculate your three to six months would include expenses like rent, utilities, car payments, etc. It does not have to include dinners out, entertainment, and clothing expenses or saving for retirement.
For starters if you cannot get there then try for at least $2,000 to have in this account.
This amount will get you started to have something to fall back on in case of that said emergency.
Why even have one?
Having a robust emergency fund gives you peace of mind. No one wants to live one paycheck away from not being able to pay the rent or one car breakdown away from not being able to get to work. You do not want something like a medical expense, or a home repair to really set you back financially in such a way that it takes years to catch back up.
It also gives you some freedom to:
leave a job, relationship, go back to school, start a business or many other things that living paycheck to paycheck would not allow you to do. Well certainly not with as much comfort or assurance and some peace of mind.
Having an emergency fund gives you the freedom to do those things if needed or wanted.
Feeding this fund!
Make it a priority!!!!
What extra side jobs or side hustles can you do to get there? Do it!
Make more money, cut expenses, lower monthly bills.
Lastly, you want to make sure you put this money in a savings account that will accrue some interest and still earn you money over time. Make sure that the account is easily accessible however, in case you do need it. So no CD's or certain money market accounts that will lock your money up for a certain amount of time.
Check out high interest savings accounts like Ally Bank or even American Express Personal Savings.