The one thing we can be sure of that will happen in an individual's life is an emergency. These emergencies can be things such as car breaks down, roof leaks, or a job loss. Emergencies can occur without any notice. People need to prepare for emergencies before they happen. People prepare by saving 3 to 6 months of expenses in an account for emergencies. This is called an emergency fund.
The emergency fund has to be easily accessible. This can be money kept in a savings account, money market fund, or somewhere in your house. By having an emergency fund, an individual will not have use a credit card or sell investments to fund these emergencies.
Having an emergency fund also allows an individual to sleep better at night. How much money should be in an emergency fund? The amount of money put in an emergency fund should be at least 3 to 6 months worth of expenses, but an individual should make there emergency fund as big as they need.
How would you feel when somethings happens like this:
- car breaks down
- furnace breaks down
- get sick
- lose a job
- sewage backup
- house fire
For anything that people have insurance for, there is a delay from receiving moving from insurance. For example, if your house or place of residence catches fire and you have to go to a hotel, you will have immediate access to the money via the emergency fund instead of putting money on a credit card. The insurance will take a few days to go through and you might have to put up a fight to get it.
People who save money these days will actually lose money due to the interest rates that banks pay on savings accounts and how this compares to inflation. See, the emergency fund is insurance and not an investment.
Do you have an emergency fund?
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