Why An Emergency Fund Is Essential

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The simple fact is that there are no guarantees in life against something unforeseen happening. Because of this reality, every person should be sure to prepare a special fund for emergencies. In most circumstances, an emergency situation will require access to financial resources, so there is simply no substitute for having a well-stocked emergency fund that can bridge the gaps and ease the difficulties when challenges arise, no matter what they may be.

Surprise situations can come in all different types. Some people may find themselves facing an unexpected period of unemployment, while others may have a health problem that brings about high costs for specialized or extended medical care. In addition, an accident or disaster can necessitate repair work on an automobile, a home, or other property. The one thing that all of these situations may have in common is that they come out of the blue, without warning or a lot of time to prepare. Having an emergency fund allows you to deal with these kinds of problems without having to turn to loans or other forms of credit, which may exacerbate the issue.

Is There An Ideal Size For Emergency Funds?


Financial advisers who are knowledgeable about emergency funds will often suggest keeping a fund that equates to your living expenses over a period of three to six months. This amount may then vary according to your financial circumstances, your standard of living, whether you are single or dealing with a sizable family, how much debt you have, and whether or not you have insurance. Obviously, then, the amount for each person’s situation may vary considerably!

The suggestion of three to six months’ worth of living expenses may seem like a lot to many people, but it is a good idea to work toward having this much in an emergency fund instead of depending on a online cash advance site. The biggest reasons for this is to cover expenses in the event that there is an income loss. Costs of living do not stop when there is a drop in family or individual income, and in these relatively uncertain financial times it can often take many months to find another place of employment.

In addition, maintaining a larger emergency fund is a good idea because it means that lesser emergencies (such as a broken household appliance or sudden home repairs) can be comfortably managed without causing a major strain on the financial front.

Finding A Beginning Point


For many people it can seem a daunting task to build a proper emergency fund, especially if they do not have one to begin with. However, remember that most emergency funds are not built with one deposit into a bank account!  The key here, as with most financial situations, is that you can begin with a smaller amount and build it up over time. By starting with a smaller goal and growing into a full three to six months of expenses, the goal will be achievable with consistent effort.

Emergency funds are usually best kept in a separate bank account (savings works very well). Create a system through which you can make deposits every payday, or on another schedule that meets your needs. If there are automated deposit options through your bank then you will not even notice it, and the account will grow regularly. Simply begin with an amount that you can manage, and grow from there.

Keeping Your Emergency Fund Accessible


Once your emergency fund becomes large enough, some people may consider placing the money into an investment account (whether money market or CD — certificate of deposit).  However, it is most advisable to keep the funds accessible, in an account that is capable of providing liquid assets.  After all, if you need the money you will want to be able to get it.

Timothy Ng lives, breathes, and sleeps personal finance! Check out his in-depth guide to doing a lifetime balance transfer where he answers everything you need about dealing with these types of balance transfer cards.

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