I have always been big on saving money for life's little emergencies. It wasn't until recently that I actually had to use those savings in my emergency fund.
My 10 month old computer stopped working. Just stopped working out of the blue. I had a ton of freelance work that needed to be completed and with no back up computer purchasing a new one was my only option. I hated to whip out $400 for a new laptop plus another $150 for Microsoft Office but there was no way around it. I am thankful that I had my emergency fund to turn this could have been crisis into a small nuisance.
Life happens and you need to be prepared. Everyone needs an emergency fund.
#1 - You Can't Avoid Life
Life is full of all kinds of surprises. You never know what tomorrow will bring.I am lucky that my emergency was a broken computer because it could have been much worse. People lose their jobs and have to turn to unemployment compensation to pay their bills. This often causes huge financial struggles that an emergency fund could have helped prevent.
Kids get banged, bruised, and broken all the time. You can't predict broken bones and the medical bills that come along with those. Especially if you don't have insurance.
Computers crash. Appliances stop working. Cars breakdown. If you are not budgeting for these specific categories then you need an emergency fund to act as a blanket.
#2 - You Won't Have To Use Credit
If one of the above incidents happened to you would you have to pay on credit? And, if you did how long would it take you to pay the charge off? How much interest would you have paid?
Avoid the interest and avoid the stress of debt by being prepared with an emergency fund. Using credit for every small emergency that comes you way has the potential to financially ruin you. The burden of debt is hard to carry. With high credit balances it could be hard for you to keep up with your other monthly obligations.
By making small sacrifices now you can prevent a lot of stress later.
#3 - Peace Of Mind
There's no better feeling than knowing that you can handle whatever financial beasts come your way. And, being financially prepared is huge stress relief.
Wouldn't it be nice to not have to rely on credit to pay for life's emergencies?
Emergencies will happen but if you have specifically saved for life's surprises they'll feel less like emergencies and more like inconveniences.
How Much Should You Save?
The amount you should save varies from person to person. Most financial experts recommend saving at least three to six months worth or expenses to tide you over if you were to lose your job. If you feel safe at your job three months savings may do. If your job is unpredictable or downsizing, six months would be a better option.
Ultimately you have to choose an amount that makes you feel safe. Choose a number that you are comfortable with and make a goal to reach that amount as quickly as you can.
If saving is something that you aren't used to start small and work your way up.
Start contributing twenty dollars a week to your emergency fund and gradually grow that to larger amounts. Look for ways to make budget cuts and to earn extra money.
Get motivated and work hard. You'd be surprised at just how fast you can fund your emergency account when you get excited about the goal.
Related: Check out this full guide to How Much You Need In An Emergency Fund
Where To Open An Emergency Fund
Now that you know why you should have an emergency fund, and potentially how much to have in an emergency fund - you have to ask yourself: where do I open an emergency fund?
I recommend that you open an emergency fund at an online bank that offers a high interest rate. Make sure it's not your normal bank for checking. Why? Because you don't want to be able to access it easily. You want it to take a couple days.
This is to help make sure you actually save. I know that if I have the money close by for easy access, I may spend it. By having my funds at an online bank, I have to make a real effort to transfer the money back to my checking account, and I know it will take a few days.
That way, I can really ask myself: is it an emergency?
Where To Open An Account?
We have a couple of favorites:
- SaveBetter: This online tool connects you with the best high yield savings accounts available online. They aren't a traditional bank, but they connect you with traditional banks looking to get your deposits. Check it out here >>
- CIT Bank: A long time favorite, CIT Bank consistently offers some of the highest interest savings accounts available. Open an account here >>
Find Ways To Reach Your Goal Faster
If you are dedicated to saving for emergencies you can find all kids of ways to speed up your savings rate. Here are just a few side hustles you can do to fund your savings a little faster.
- Work Overtime
- Sell Old Stuff
- Find Freelance Work
- Make Budget Cuts
- Stop Shopping
- Use Coupons
- Get a Second Job
Remember, these are all temporary sacrifices to get you where you need to be financially. After you have emergency fund complete you can go back to your old way of living. But, who knows, you may end up loving your new financial routine and end up sticking with it.
Make sure to keep your emergency fund in an easily accessible place. A traditional savings account is a good option. (Just don't tie your savings account to your checking account. You don't want to be tempted to spend the money you worked so hard to save.)
Those are three good reasons to have an emergency fund. If you haven't started saving for life's emergencies you need to start NOW.
There's no better day than today to get started. Start small and work your way up until you hit your goal. Be sure to save enough money to make you feel safe and protected from whatever life throws your way.
How much of an emergency fund do you think is adequate?
Alexa Mason is a freelance writer and wanna be internet entrepreneur. She is also a newly single mom to two beautiful little girls. She chronicles her journey as a single mom trying to make it big at www.singlemomsincome.com.
Emergency funds are so important! It helps me relax a little more because I’m not worried as much about something wrecking our finances.
Absolutely emergency funds keep stress at bay and let you relax knowing you can cover life’s unexpected surprises.
We don’t have an emergency fund, but we do have an emergency plan and we have liquid savings. Unexpected expenses don’t have to be emergencies, but they do need to be covered.