Life often throws us around unexpected curves. Cars break down, water heaters blow up, medical expenses pile up, jobs lay people off… The best that people can hope to do is to be ready for the little things that come up – and be prepared ahead of time for the big ones too. Having a stash of readily accessible money can really help smooth even the worst situations.
Emergency funds are something that should be kept in everyone’s financial regimen. These are often among the most neglected aspects of personal finance. It can be very difficult to simply put aside a chunk of money and have the discipline to not touch it. However, you must consider – the last thing you want to do is to be forced to rely on a loan or on credit cards, compounding the problem in a time when you are preoccupied with other things.
Not too long ago, a friend of mine took a road trip through several states. During this trip, a variety of misfortunes befell him. His car broke down unexpectedly despite vigilant maintenance and care. He was caught in the middle of the Nashville floods. Motels were filled up, leaving little in the way of options for staying in town. All told, the trip ended up costing hundreds of dollars more than he had anticipated or budgeted for! These things can happen to anyone, at any time, with no warning. Had he not had an emergency fund, the trip could have been a tremendous disaster.
Traditionally, experts indicate that you should have between three and six months’ worth of living expenses saved to fund your emergency account. There are a huge variety of variables that will effect what you need – levels of debt, children, insurance coverage – all impact the amount of emergency funds you need. Take a look at your own situation and determine what is best for you.
The reason that so much is recommended is that the most common need for an emergency is a sudden and unexpected loss of income. Bills still must be paid, food must still be put on the table, and a new source of income must be found. All of these take resources! More than ever in the last months this become at the forefront of people’s minds; with joblessness rate so high, many people are worried about what will happen.
It can be tough to start an emergency 
fund. Many people think that it is hard to accumulate that much money without it taking a bite out of their lifestyle. Starting small is a good way to begin. Everyone can afford to put away ten dollars or so a month; maybe even per week. After a short while, you won’t even notice that ten dollars missing. Then you can add another ten, and another… pretty soon, saving $20 or $30 per week, you’ll have a good nest egg to act as an emergency fund. Put the money into an interest-bearing account that you can easily access when you need to – don’t put it into stocks, mutual funds, or anything like that, as the fluctuations could put you low on funds when you most need them. Now for the most important thing, the one that people have the most trouble with:
Don’t. Touch. It.
Temptation will be rife. You’ll see a new car, pair of shoes, a computer… There are hundreds of things that you’ll want to use that money on. Discipline must be maintained, or you won’t have that emergency fund during the time you most need it: during an emergency.
Tags: budget activities, Budgeting, experiences, goals, necessary, traditional
[...] has times when they have a need for money quickly. In my previous article, I wrote about the need for an emergency fund – a cushion of readily accessible money for you to [...]