Emergency Fund

James Justin Financial Health Leave a Comment

Beware of little expenses; a small leak will sink a great ship.” — Benjamin Franklin

In the previous post, I shared 2 major reasons why you should never save your money. If you did read it yet, you can do so by clicking HERE! This month’s post focuses on the importance of having an emergency fund.

Are you prepared for a BIG emergency? What about the little urgencies of life, how prepare are you?

Imagine… limiting that daily $5 Starbucks latte or lunch out to Fridays only. Did you know that over a month, that’s an additional $80 towards your Emergency Fund or that new dish-washer you know you will need by next year. What if you had an emergency fund to cover such expense, would you have peace of mind? Yes, right? That’s why it’s important to start creating your emergency fund now even if your income remains the same.

What’s an emergency fund?

According to the U.S. Consumer Financial Protection Bureau, an emergency fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Why do I need it?

An emergency fund gives you peace of mind, financial resilience, so you can handle unplanned expenses without jeopardizing your financial stability. It can help you avoid the need to get bad debt. It can help minimize stress. An emergency fund helps you avoid costly financial decisions. Research suggests that individuals who struggle to recover from a financial shock have less savings to help protect against a future emergency.

How much do I need in it?

The amount you need to have in an emergency savings fund depends on your situation. Most financial coaches recommend that you have 3-12 months of saving using your monthly budget or your total living expenses.

How do I build it?

There are different strategies you can use to create your emergency fund. Consult with your financial advisors for details. Here’s the guidelines provided by the U.S. Consumer Financial Protection Bureau

  • Set a goal. Having a specific goal for your savings  can help you stay motivated.
  • Create a system for making consistent contributions. There are a number of different ways to save, and as you’ll read below, setting up automatic recurring transfers is often one of the easiest.
  • Regularly monitor your progress. Find a way to regularly check your savings.
  • Celebrate your successes. If you’re sticking with your savings habit, don’t miss the opportunity to recognize what you’ve accomplished.

Where can I keep my emergency fund?

There are many banks that offer “High Yield Online Saving Account” such as SynchronyBank.com and Marcus.com. This may be a good place to start. You can also use cash, prepaid cards or your local credit union. Ask your financial advisors for help.

 Having an emergency fund is an important steps to financial freedom. We all need to maintain one. When you have one, it will give you peace of mind among other benefits. Once you create and maintain an emergency fund, it’s time to built wealth by investing your money to work hard for you.

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