Your Guide to an Emergency Fund

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Introduction

78% of Americans live paycheck to paycheck. An unexpected event like an accident, job layoff or even disease can turn your life upside down if you don’t have a solid emergency found.”Unexpected expenses can just throw you into a spiral” said Jennifer Barret , Chief educational officer of Acorns. In case, you may wondering, Acorns is an investing app that help you start investing with as low as $5.

What is an emergency fund?

An emergency fund is basically money set aside for unexpected events. These events could be a job lay off, a disease, an accident … As you may be thinking nobody wish for such things to happen in our lives but nevertheless you should prepare for it. According to CNBC, about 57 million Americans have no money in their emergency fund.Those are sobering numbers. But the good news is you don’t need to start big, you can start by setting aside $5 per week and increase as time goes by. To build an emergency fund, you first need to develop a strong habit of savings. And to start, you need to create your own budget that will help you minimize your expenses.

How to start an emergency fund?

If you don’t have money aside for emergency, maybe your first priority should be to build one. Start by creating a savings account to your local bank or choose an online bank and have a percentage deducted each week or after each paycheck.

If you won’t have to think about it, it’s easier. Then look for ways to add irregular income as credit card rewards, cash backs or even a part the cash left in your wallet when payday is close.

How much savings is enough?

The standard financial advice is to save up to three to six months worth of your take home pay.

A recent post on CNBC by Kathleen Elkins says that economists recommend saving at least $2,467 in an emergency fund for low-income households.

And Dave Ramsey author of “The Total money makeover” and seven national best sellers, advises to save $1,000 first if you have debt to take care of.

Where to put your savings?

An emergency fund is supposed to be used when facing unexpected events that require you to pull cash out immediately. So the best advice is to have a separate checking account or a money market account different from your principal one. That way you can access your money easily and quickly with a debit card.

When it happens that you need money or want to use your emergency fund, ask yourself those three questions as suggested by Rachel Cruze in her blog post A Quick Guide to Your Emergency Fund :

  1. Is it unexpected?
  2. Is it necessary?
  3. Is it urgent?

If you answer yes to all those questions, so you need to use your emergency fund.

If you can put aside $20 a week, at the end of the year, you will have a little bit over $1,000. And this will give you confidence to continue saving because you know that won’t reduce or impact negatively your lifestyle.

Thank you guys for reading me. I heard that some people use their credit card to cover emergency expenses. Tell me what you think about that in the comments section below.