When life gives you lemons…Do you have an Emergency Fund?
Why have an emergency fund?
Life is full of the unexpected. Whether that be medical emergencies, roof leaks, car accidents, or even a pandemic. We can never know everything that is going to happen, but we can be prepared.
Having an emergency fund is foundational to any successful financial plan. Without money to fall back on in emergencies, you may be forced to tap into your savings for retirement, college, or other goals, or you may even be pushed into debt. Having a cash fund to fall back on when “life happens” protects you and your goals.
How much should I keep in my emergency fund?
Fundamentally, anything is better than nothing. So, start where you can and work at building your emergency fund over time. Ideally, you should be able to cover 3-6 months of basic living expenses with what you have saved. This way, if you lose your job or a pandemic closes your business, you will be able to pay for your housing, food, and basic needs.
Consider your personal situation. Are you single? Do you have kids? If you’re single, you may want to save more because you don’t have a partner’s income to fall back on. If you have kids, are your base costs more expensive? When planning what to save, be honest with yourself. What do you need to support yourself if the worst were to happen?
Where should I keep my emergency fund?
Many of us view our checking accounts (and sometimes even saving accounts) as “accessible” money. An emergency fund is not the same as your vacation savings or the money available for your kid’s wedding. Consider setting up an account at a different bank not connected to your main checking account. Skip the debit card to avoid temptation.
Remember, this fund is for emergencies. So, it needs to be accessible and liquid. Don’t tie up your funds in real estate or investments, keep it accessible, but not too close for temptation.
How do I build my emergency fund?
Life is full of expenses, that is why creating a budget is important. Incorporate a savings plan as part of your budget. Whether that be automated deposits with every paycheck, or a place to put your bonuses and tax refunds.
Reach out to talk about how to protect your family and your financial future by having a plan. We can be reached at (480) 214-9596 or firstname.lastname@example.org. Thank you!
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