Having Emergency Savings is Always Important
Generally, most financial experts believe that having emergency savings is critical. Life is unpredictable and it is important to have money that is there for you if you need it.
However, in today’s challenging economic times, many people think they don’t have the money to put aside for emergencies. When you’re using most of your income to pay your bills, it’s hard to build emergency savings and you may think that you can’t or don’t need to do it. However, these challenging times are why it’s so important to save for emergencies.
If you’re currently having a tough time making ends meet, what would you do if something unexpected happened? How would you handle your bills if you got sick and couldn’t work or if you lost your job? What would you do if your car needed an expensive repair? Could you pay to fix it?
While, in challenging times, it’s certainly difficult to put money aside for emergencies, it’s also incredibly important. In these times, no one knows what’s going to happen next, so it’s important to prepare if you can.
What is an Emergency Fund?
An emergency fund is money that you put aside to deal with unexpected expenses or to help you cope with a situation where you’re not earning your full income (such as if you are injured, ill, or lose your job). An emergency fund gives you peace of mind and helps you afford your bills. When you know you have money put aside that will help you deal with emergencies, you’ll relieve some of your stress, since you won’t have to worry about what will happen if an emergency strikes.
Emergency savings should be kept in a separate account from your main savings to keep you from dipping into your fund for non-emergency reasons. However, you’ll want to avoid placing emergency savings in a mutual fund or any type of long-term investment. That’s because you’ll want to be able to access these funds quickly when you need them. Emergencies usually occur without much notice.
Why Do You Need Emergency Savings?
There are many reasons why you should have an emergency fund. If a sudden expense comes up (such as having to fix a broken refrigerator or pay for an unexpected car repair) you’ll have the money to pay for it if you have savings. If you don’t have anything put aside for emergencies, you may end up having to take on extra debt to pay for a sudden expense.
An emergency fund is also important because it can help you afford your expenses in situations where you aren’t earning your full income. For example, if you lost your job or were unable to work regular hours due to illness or injury, it would be very difficult to afford your monthly bills unless you have an emergency fund in place.
How Much Should You Put Aside for Emergencies?
The amount you should put away in your emergency fund depends on several factors. If you are the primary earner in your family or if you work in a field where you think it may be difficult to find a new job should you become unemployed, it’s a good idea to have at least six months of expenses available in your emergency fund. This means you should have enough saved that you can pay all your bills for six months.
If you are not the primary earner or if you believe it won’t take long for you to get a new job, you would likely be fine with three months of expenses in your emergency fund, but the situation is different for everyone.
How to Build Emergency Savings
It’s understandable that many people have trouble putting money aside for emergencies. Today, a significant portion of the population lives paycheque-to-paycheque. However, putting money aside for emergencies is crucial, as mentioned.
Of course, no one can build up six-months of expenses overnight. It takes time. To start, put a category in your budget for “emergency savings” and “pay” this bill each month. Over time, you’ll build up your emergency fund. This will take time, but don’t worry. Even a smaller emergency fund is better than having none at all.