Why You Need An Emergency Fund ASAP
Why do you need an emergency fund? According to CNBC,
one-quarter of Americans, or roughly 55 million people, said they had nothing saved in an emergency fundJdickler. “The First Thing You Should Know about Saving Money.”, CNBC, 6 July 2018,
We live in a world full of unpredictable events. Emergencies are bound to happen and they can be stressful. Having an emergency fund will save you the financial stress and allow you to recover from the damage.
The last thing you want is to be caught off guard and have to resort to taking out a loan. Be proactive by saving a rainy-day fund before any emergency happens.
How My Emergency Fund Saved My Ass!
Let me tell you about my first car accident back in high school.
Yes, the fault was mine because I was still new and inexperienced. I was backing out of a parking lot while being unaware of how close I was to the driver behind me.
SHIT! I accidentally bumped into him! Being extremely pressured and stressed, I put my gearshift into drive, and guess what.
I reversed into the same guy, but this time it was at MAXIMUM POWER! I SWEAR MY GEARSHIFT WAS SWITCHED TO DRIVE.
Long story short, I didn’t want him to claim the accident because
- It would’ve damaged my dad’s insurance history
- My parents would’ve found out about the accident
I asked him if I could just pay him in cash for the damages; it was like a tiny little scratch. Like no one could even notice it!
He wanted the cash right away and luckily for me, I had it ready.
The Moral Of This Stupid Story?
Always have an emergency fund ready because you will never know when something will happen that will require you to pay a hefty fee!
How Much Should You Have In Your Emergency Fund?
Your First Milestone is To Save $1000
Saving can be difficult; especially if your financial condition is limiting you from keeping a lot of your income.
Regardless of the situation, aim to save your first $1000 as your emergency fund; even if you have any debts that will accumulate interest.
Accruing interest sucks, but your emergency fund can be the difference between life and death.
What’s worse? Being unable to pay for your children’s medicine? Or being charged interest on your credit card?
Grow Your Emergency Fund to 3-6 Month’s Worth of Expenses
$1000 is a good start to your emergency fund, but it won’t cover much. Do you have enough money to live off of for a few months if you lose your job?
Businesses are changing and some companies are not built to sustain their growth. You should always have a plan B if something happens.
I mentioned in my Different Streams of Income blog post that you don’t want to rely on only one income.
Unfortunately, if your household only has one income stream and you happen to lose that one then you will need an emergency fund to fall back on until you pick yourself back up.
Aim towards 3 months worth and eventually climb for 6 months. If you want to be super safe then you can even aim to save up an emergency fund worth a year of expenses!
How Much is an Emergency Fund of 3 to 6 Months?
Google-ing “what’s the average person’s 3 to 6 months worth of expenses” will not give you the most accurate answer because you are not the average person. You are you.
It’s better to actually track your income and expenses and see how much your lifestyle is actually costing you.
This will give you a reliable answer as to how much you need to save for your emergency fund if you want it to last 3 to 6 months.
How To Save Up For Your Emergency Fund
Saving for an emergency fund can be challenging; especially when you have a bunch of bills to pay. Luckily for you, I have some resources on how to save money!
You can check out my money saving tips here!
- Things I Stopped Buying To Save A Lot of Money
- 20 EASY WAYS to Save Money
- How to Save Money As A Student
- Make Saving Money Fun With These Money Saving Challenges
- Cut Back On These Grocery Items to Save Money
Utilize the Power of Interest and Compounding with Online Banks
I don’t recommend you to stick your emergency fund in the stock market because you want this money to be as liquid as possible. That means you want to be able to quickly convert it to cash without any trouble.
You have this big stash of cash ready for an emergency, but this big amount can be used to invest and make even more money! So what do you do?
You meet in the middle where the fund is still liquid, but also accruing interest. I’m not talking about a savings account at a traditional bank! I’m talking about an online bank where the interest rate on your savings account is a lot higher! Credit Unions can also be a good option!
I currently use EQ Bank’s Savings Account where I am earning 2.30%!
Put your emergency fund in an online bank where your money is safe, accessible, and accruing 2.30% interest!
Having an emergency fund ready for any situation will come in handy. The last thing you want to do is to borrow from a family or friend just to pay off a nuisance.
Be ready and aim to save up your first $1000 and eventually 3 to 6 months worth of expenses. Once you’ve saved a small nest egg then keep this fund in an online bank to accrue interest.
Hopefully you will never have to use this fund, but it’s better to be safe than sorry!
QUESTION FOR YOU: How much do you have in an emergency fund? Do you have any tips to help others quickly save up their emergency fund?