Why You Need an Emergency Fund
Posted on Monday, January 13th, 2014 at 8:00 am
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.