An emergency fund gives your peace of mind and protects your finances during a financial crisis. It serves as a cushion between you and all the unexpected events that life will throw at you.It prevents you from worrying when you experience a decrease in income, or have no income. Most of all, it makes sure your financial plan stays intact.
Money Used for things that are Urgent and Unexpected
When we were told our emergency fund was insurance preventing us from getting back into debt, we did not fully understood the concept. It was just a matter of time before the message became crystal clear. A few months after we moved into our home, AC unit needed fixing, the roof developed a leak and one of the our cars needed repairs. All of that ended up costing us about $6000.
You will have crisis in your life that will require money. Money in your emergency fund will come in handy for those unexpected but urgent needs.
How much do you need in your Emergency fund?
The amount of money you save in your emergency fund depends on your family situation. It is recommended that you save at least 6 months of living expenses .
Some of the things to consider prior to deciding how much you save in you emergency fund include:
Job security
Marital Status
Health of income earners
Number of income generators
Family obligations
How to build an emergency fund
1- Create a budget: This will enable you to know what your living expenses are, and help you set a baseline of your spending.
2-Start and be committed. Irrespective of the amount, save on a regular basis. Be consistent.
3-Automate your savings
4-Get out of debt and increase your income: Consider decreasing your spending, canceling subscriptions you are not using, selling things your don’t need or getting a second job.
Sign up for the free BFR 14-day saving challenge and start building your emergency fund today.