If life has taught us anything, it's that unexpected things happen. Whether it's a flat tire, a medical bill, a job layoff, or a busted water heater, an unexpected expense can be financially detrimental. An emergency fund can make a huge difference in protecting yourself against hardship.
What is an emergency fund?
An emergency fund is money that you have set aside specifically for unplanned expenses like:
- Medical emergency expenses
- Car or home repairs
- Job loss or reduced hours
- Emergency travel
- Replacing a broken appliance
There is no need for shame when spending emergency funds on an unexpected expense. Emergency funds are for your financial security.
Tip: Emergency funds aren't for vacations, shopping, or "want it" situations.
Why is it so important to create?
When emergencies hit and there isn't a cushion, people often have to:
- Take on credit card debt
- Use payday loans
- Borrow from retirement accounts
- Delay other financial goals
Emergency funds help you handle a crisis without creating a new one.
How much should I save?
This depends on your situation, but here is a general guideline:
Starter Fund: $500-$1000
Basic Cushion: 1-3 months of expenses
Full Emergency Fund: 3-6 months of expenses
Tip: If you are living paycheck-to-paycheck, even saving $25-$50, at a time, is a win! You are building resilience!
Where should I keep it?
Your emergency fund should be:
- Easy to access (but not too easy)
- Separate from your checking account
- Safe (not invested in the stock market)
Tip: A high-yield savings account or money market account is a great option. It earns a bit of interest and keeps the money out of sight and mind, until you need it.
5 tips for start (or grow) your emergency fund:
1. Set a clear, specific goal
- "I want to save $600 in 3 months by setting aside $50 from each paycheck"
2. Automate it
- Schedule a recurring transfer to savings.
3. Save unexpected money (i.e., tax money, birthday gifts, and rebate checks)
4. Cut one small expense
- Cancel a subscription or bring coffee from home for a month. Redirect that savings.
5. Celebrate milestones
- Give yourself credit while you are building an emergency fund
Emergency funds aren't about being afraid, they are about being prepared
Emergency funds bring peace of mind, protects your progress, and helps you breathe easier when life gets hard.
At Walters Financial Wellness, LLC, we can help you:
- Set realistic savings goals
- Build your emergency fund step-by-step
- Feel confident and in control of your money
You deserve financial security! It starts with one simple savings goal, the emergency fund. Let's build it together!