Low-income families with at least $1,000 in an emergency fund were better off financially than middle-class families with less than this amount. Yet it’s interesting that most don’t have enough savings to cover an unexpected emergency.
What is an emergency fund?
An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly. An emergency fund consists of at least $1000, keep it in a savings or money market account that you do not have easy access to, but easy enough to get it when you need it (make sure that withdrawals are without penalty. If you do not have an emergency fund in place already, STOP and quickly get it together. If you do not know where to get started consider setting up an eBay account. For more information how to set up your free eBay account CLICK HERE. After you complete this step, regularly scheduled automatic contributions that build up over time. Within a year I recommend having at least 6-9 months of living expenses saved up for emergencies. Let’s be clear… the pizza guy, your wedding anniversary, Christmas, family vacations, or not even routine car maintenance isn’t considered an emergency. Those items should already be included in your regular budget.
Why should you start saving for emergencies?
An emergency fund may be the most important difference between those who manage to stay afloat and those who drown in the stress and frustrations of debt. Having an emergency fund gives you peace of mind knowing that when the unexpected events begin to happen (and they will) that you will be able to cover the burden. Keeping a minimal of $1,000 in savings for emergencies can allow you to easily meet unexpected financial challenges. Think about the peace of mind that you would have if your job was furloughed or “burned” from your job and had $12,000 (6-9 months of living expenses) in the bank.
Not having emergency savings is one of the reasons people carry high loans and money problems which results in stress in marriages. Again, just think how much more secure you would feel with $12,000 in the bank. Dave Ramsey says those emergencies would no longer be emergencies but merely an inconvenience.
How should you build your emergency savings?
The easiest and most effective way to save is automatically. Financial experts are always saying that you should have “between three and nine” months’ of expenses saved in an emergency fund. OK, great. But which is it?
Having adequate emergency savings can make unforeseen unemployment, major auto repairs, medical emergencies, property damage and even legal issues more manageable. With adequate emergency savings, you can focus on how to best meet your family’s needs, rather than worrying about finding the money to handle these difficult situations. This calculator helps you determine how much emergency savings you may need, and how you can begin saving toward this important goal.
Money market accounts are similar to savings accounts in that they can offer higher yields. You can open a money market account online or at a local bank. Money market accounts are easy to use and your funds can be withdrawn at any time, they can be a good option for your emergency savings.
Your emergency fund is there to protect you and your family from financial stress caused by unexpected expenses. While you’re not using it, though, your account needs a safe place to grow. Dave Ramsey says to treat emergency funds as insurance because it’s not there to make you money but to be there in case you need it.