Why You Need an Emergency Fund
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Why You Need an Emergency Fund

Posted on Monday, January 13th, 2014 at 8:00 am
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We all know that saving money is a tough task to manage. However, creating an emergency slush find is something that should be on your mind as well. We all know that saving money and tightening your budget is a tough task to manage. However, creating an emergency slush find is something that should be on your mind as well. An emergency slush fund is an amount of money set aside to be used in case your family experiences an emergency. What constitutes an emergency is up to you, but some hypotheticals you should consider include: a large medical expense, if you or a spouse loses their job, etc. The goal of your emergency slush fund is to get you and your loved ones through a trying time.

The Importance of an Emergency Fund

Experts recommend saving anywhere between three to six months of expenses and not touching it. This amount should cover your living expenses, household costs, insurance costs, etc; basically any cost you expect in case of temporary unemployment. When budgeting for this three to six month slush fund it’s important to keep you dependents in mind and any other costs you may not expect. If you have kids you’ll want to set aside money for school expenses like field trips or supplies. Or, if you forgot to calculate what you owe to the state or federal government for taxes.  Be careful and take enough time to think about future expenses and don’t be afraid of saving even more than you think is necessary. Try to keep inflation in mind because you can never be too careful!

Instead of taking massive amounts of money out of your savings account and moving it to your emergency slush fund we recommend saving for your worst-case-scenario account little by little. Try contributing $20 to your fund weekly. Instead of going out to dinner on a Friday or Saturday night try eating in. Deposit the money you would have spent into your emergency slush fund. The liquidity of your emergency fund is key, so be sure to keep as much cash in your slush fund as possible. This means you should avoid CDs, bonds, etc. The goal is to be able to access your slush fund as quickly as possible without any financial penalties.

 

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Good Tip: Saving money is important – especially if you have a lot of expenses like bills to pay, loans to pay off, and all the other things that drain your bank account. Figuring out a way to save money can feel tedious to some, and like a punishment to others. U.S. News suggests that you try one of these money saving challenges. The “No Eating Out for a Month” Challenge This one is self-explanatory. The goal is to avoid eating out for an entire month. This might be super easy for people who enjoy making meals at home. People who really enjoy dining out, or ordering food to be sent to their home, may struggle with this one. It’s worth a try because spending money on take-out is more expensive than buying groceries. The Pantry Challenge This one is a variation of the “No Eating Out for a Month” challenge. The goal is to use up all of your groceries before you buy more. It forces you to try and remember why you bought a food or beverage that you don’t know what to do with, and gives you the opportunity to find a way to use it. The one exemption to this challenge is the foods that have expired. Don’t eat them! Throw them in the trash. The “No Spend” Challenge Make a goal to avoid spending money during an entire weekend. The only exemption in this challenge is that you are allowed to pay bills. This challenge is interesting because it requires creativity. You must be creative and find workarounds for problems that you would typically solve by spending money. You may have a different outlook on spending after finishing this challenge.