My husband bought a used car a few years ago. It checked all the boxes. Low mileage, no previous accidents, and it got decent gas mileage.
We planned on him driving that car for many, many years to come. I’m still driving my 14-year-old car if that says anything.
But something totally unexpected happened last year. Even though his car had less than 75k miles on it, it died!
The only way to revive it was to replace the whole engine! After weighing all the options we decided that it made the most sense to go ahead and fix it.
And just like that, we needed 4k to fix his car.
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As you could imagine the stress was overwhelming. Handing over 4k to fix a car that was supposed to last us for at least 6-8 more years (at minimum) was a hard pill to swallow.
It was an unexpected expense, to say the least. Thankfully, we were financially prepared. We had an emergency fund stashed away for this kind of an unfortunate situation and we were able to cover the cost entirely!
It got me to thinking though. What would we have done if we didn’t have an emergency fund set aside? Our options would have been either charging our credit card and getting into debt or keeping an unusable car parked in our driveway until we could slowly save up the 4K to have it fixed. Neither a situation that I wanted anything to do with.
Having an emergency fund is absolutely necessary for life’s crazy unplanned moments.
So hurry up already and start preparing for that emergency that is bound to happen. Your future self will be thanking you. I promise!
What is an emergency fund?
An emergency fund is money you’ve set aside in case of emergencies, I know, pretty self-explanatory. And it should be used for just that. It’s not the same as your savings account or your rainy day fund or really anything else.
It’s not there for you to use as extra money for when you really really want something. It has a very specific purpose for events that are unplanned and unexpected in your life that can throw a wrench in your finances, like in my case a new engine for my car.
It’s never to be used for any wants. It’s reserved for emergencies only.
Some things that fall into this category is a trip to the emergency room, a broken down car, a job loss, or unexpected home repairs just to name a few.
Do you really need an emergency fund?
If money is already tight for you then you might be thinking to yourself that you can’t afford an emergency fund.
That’s where you’re wrong. It may be challenging to build up your emergency fund, but definitely not impossible.
Think of it this way, if you’re struggling to pay your bills now, what are you going to do when an emergency happens? And you know it’s going to happen eventually. Life always seems to throw curve balls at the worst possible times.
Not only is it absolutely necessary for you to have an emergency fund to help you through those unexpected events, but it’ll also help you emotionally and mentally.
If you’re like most people, including me, money can be a huge stressor It can keep you up at night and give you anxiety throughout the day because you’re afraid of what costs might come up next.
Having that money tucked away can provide you that much-needed peace of mind. That in itself is worth all the money saved.
How much do you need?
Everyone’s circumstance is different so there’s no right or wrong amount. However, most financial experts recommend having at least 3 – 6 months of living expenses in your emergency fund. I’m on the extra cautious side of that spectrum and try to have at least 9-12 months worth of living expenses saved up.
Most people aren’t able to quickly pull together $1000 much less 3 months of their income if something were to happen to them. So I can’t stress enough how important it is to have at least that much in your emergency fund. Consider it a safety net for life’s curveballs.
Remember that it’s okay to take baby steps. Baby steps in the right direction will help you get to your goal no matter slowly it may take.
Steps to start an emergency fund
Accessible bank to store the money
When you start an emergency fund, you need to place it into an account that is separate from all of your other accounts.
Remember, this is for emergencies only, so don’t mix other savings and everyday money with this account. You don’t want to “accidentally” spend it.
Choose a bank or savings account that offers their services for free. It would be upsetting to find out that your money has been eaten up by fees while it’s been sitting there. You can find a feeless bank on Bankrate.
You’ll want to store the money somewhere that’s easily accessible. Just so you know, most online banks can take anywhere from 3 – 5 business days to transfer the money into your bank account. Do not put the money in a long-term investment account or a CD. Because you don’t want your money to be tied up because you never know when you’ll need the money.
To make it easier, automate the money transfer from your check or checking account every month. This way you won’t forget to transfer the money.
Realistic review of your budget
Budgeting is so important because it helps you understand your money. It tells your money where to go every month and helps you figure out where you can cut back.
Not only will your budget help you stay on track, but it will also help you find money to start your emergency fund ASAP.
Seeing your budget should have opened your eyes to where your money is going and where you can cut back.
You may have found that you’re spending way too much money on food or the movies. Make some cuts and put it towards your emergency fund.
Just by saving $84 a month, you’ll be able to save a $1000 in your emergency fund within a year! But if you’re able to save more money here and there, do it!
The faster you build your emergency fund, the faster you’ll have a safety net for those unexpected events in your life.