An emergency fund is something that everyone should have; however, there are many people who do not have one. The purpose of an emergency fund is to have money available for unexpected expenses. If you do not have money available for these things, you can encounter problems when you try to determine how to pay for the expense. Having an emergency fund is something you can set up, and here are a few things to understand about this.
The effects of not having an emergency fund
If you do not have an emergency fund set up, how do you pay for unexpected expenses when they arise? In addition, what would happen if you lost your job and had no income? Without an emergency fund, you may have to borrow money from relatives or pay your bills with credit cards. This will put you in a bad financial position, and you can avoid it by starting an emergency fund.
With an emergency fund, you will have money on hand to use for the unexpected things in life. For example, if your car breaks down and needs $2,000 in repairs, you could easily pay for it if you had money in your emergency fund.
How much money it should contain
Experts often recommend having enough money in your emergency fund to cover three to nine months of expenses. This means that if your expenses are $3,000 per month, you should have a minimum of $9,000 in your emergency fund. If you had this much put aside for emergencies, you would not have to worry about your finances if you suddenly lost your job. It would give you time to find a new one without having to go into debt to pay your bills.
This is a lot of money to save, though, and it might seem overwhelming for you to try to achieve this amount. Because of that, it's good to aim for a low amount first and work your way up.
How to create one
It is not hard to create an emergency fund, but it will take some work and dedication to reach the dollar amount you need or want in the fund. A good place to start is by setting up a savings account to use for the fund, and you might be able to do this with only $100. You can then begin making deposits into the account each time you get paid. The deposits could be as little as $20 a week if that is all you can afford. Over time, the fund will grow, and you will eventually have enough in there to pay for unexpected expenses.
Setting up an emergency fund should be a priority for you if you do not currently have one. If you need help with this or with other types of budgeting problems, schedule a visit with a financial planner or investment services expert today.