Are you prepared for the worst?
What would you do if tomorrow you lost all -or at least a significant part- of your income?
That could mean a job loss, a missed child support payment, a reduction in government funding, or anything else that affects your inflow. Would you have enough money to survive a couple months? What if your car broke down or you needed to replace a big-ticket item like your oven? Would you have to rely on credit? These inconveniences create emotional, physical, and financial stress.
What if you could eliminate the financial stress? That’s what an emergency fund does!
An emergency fund is a big chunk of cash that financially prepares you for whatever life throws at you. It’s an integral part of your financial health and the first stepping stone to building a solid foundation. You should have one before you make any major financial decisions. An emergency fund keeps you safe by helping you stay out of debt; without it, you’d be swiping a credit card or taking out a loan every time something came up.
Everyone’s emergency fund amount will be different.
To find out how much you need in your EF, add up all your necessary monthly expenses. Some common categories to consider are Housing, Transportation, Food, and Medical Needs. Basically anything that keeps you comfortable and alive!
Your emergency fund should be secure and easily accessible!
Don’t tie it up in investments or stick it in a jar under your bed. Keep your EF separate from the rest of your money to avoid being tempted to spend it. Research your options for a high-interest savings account to prevent your money from losing value while sitting stagnant. If a HISA isn’t your jam, opt for a regular separate savings account. Just keep it separate!!!
You’ll have an easier time staying motivated if you automate your savings and break your end goal into smaller goals.
A 20K EF might be your end goal, but it isn’t your first goal. Start with smaller goals; go from 100 to 500 to 1000. It gets easier once you get started. But you have to start.