The Challenge of 2023 ~ Have an emergency fund

An emergency fund is something everyone should have. When you set money aside for emergencies, you are preparing yourself for unexpected expenses. Instead of relying on credit cards or borrowing money, which can cost more in the long run because of interest charges, an emergency fund can protect you from taking on debt.

If you don't have an emergency fund and an emergency happens you have to go into debt, add to your current debt, or not be able to afford your basic expenses.

What kind of emergencies? No matter how secure you think your job is, there is always a chance that something could happen where you may need money. You could have a medical emergency come up which is not covered by your health insurance (if you even have health insurance). An emergency fund is a good idea if you have a car. You just never know when it will need a repair. If you own a home you might have to deal with an unexpected home repair that is not covered by your home insurance. If you have a sick pet, if you need to take time off work, or a host of other emergencies you may not have thought of, an emergency fund is a good idea.

What’s not an emergency? An emergency is not a birthday present, a new TV, or a vacation. 

Your emergency savings fund is meant to cover essential spending when something unexpected happens. An emergency fund will give you peace of mind if anything costly were to happen in your life. Instead of adding to your stress, you will know you can afford to pay your bills.

There are many reasons why you need an emergency fund, and debt may be one of them. An emergency fund while you’re in debt protects you from taking on more debt, and it will help you to continue making your debt payments if an emergency happens.

The recommended emergency fund amount is dependent on your situation. If you don’t have debt, then it is usually recommend that you have enough to cover at least three to six months of expenses. 

Your emergency fund is there so that when you need money fast, you can access it. You don't want to keep it in a place where you will be penalized for taking it out or have it invested in high risk investments. Keep your emergency fund in a high yield savings account so that you are earning a little bit of interest.

At the same time, you don’t want your emergency fund to be too easy to get to. Keep your emergency fund in a different account from your normal spending bank account.

Many people think of their credit card as their emergency fund. Some are doing it by choice, and others are forced to use their credit card when an emergency comes up because they do not have enough money saved. Using your credit card creates new debt or increases your current debt load. You never know if something may come up, how big the expense may be, and whether or not you will have a large enough credit limit to fund the expense. Plus, the interest rate on your credit card can make for an expensive bill if you are unable to pay your credit card balance before interest accrues.

There are situations where using a credit card for your emergency savings fund may not be a completely bad idea. If you know that you can pay off a large expense within one month, then using your credit card as an emergency may not be a bad idea, but you still need to be careful before adding any debt.

The first step to starting your emergency fund is opening up a separate account to save in. Set aside a certain amount each week to add to your account. Even better, arrange with your bank to transfer a set amount to your emergency fund account each week. Deposit your tax refund to your emergency fund. If you saved money on grocery shopping put the savings into your emergency fund. Get creative . . . 

Everyone has to start somewhere. $100 in your emergency fund this month will grow, and soon you will have saved $500, then $1,000. Once you have that saved, you can continue to add to it.

Do you really need an emergency fund?

Yes, you do.