Life is full of surprises. While some of these might be pleasant, you're also likely to experience those that can put you in a financial jam. An emergency fund can help protect your financial health in the event the unexpected happens.
What is an Emergency Fund?
An emergency fund is money you set aside to use in case of financial emergencies or unplanned expenses. The nature of emergencies can range from suddenly losing your job, car repairs, unanticipated medical costs, and home repairs. You can also tap into your emergency fund to help you when changing jobs.
Why You Should Have an Emergency Fund
One of the most important reasons for having an emergency fund is the peace of mind that it gives you. Having an emergency fund ensures that you can weather some financial setbacks without eroding your overall financial health.
Another reason for establishing an emergency fund is that you could avoid paying costly interest charges. Instead of relying on credit cards or other short-term loans, you’ll be able to pay these unexpected expenses upfront with the money you have put aside.
Emergency Fund Basics
It's all good and well to understand that having an emergency fund protects your financial future, but where should you start? These emergency fund basics can help:
How Much Should Your Emergency Fund Have in It?
Aim to put between three and six months of your monthly living expenses into your emergency fund. This is a good rule of thumb to start with because it helps you weather those temporary financial setbacks. Not surprisingly, the more you save in your emergency fund, the better prepared you’ll be.
Where Should You Keep Your Emergency Fund?
The location of your emergency fund is equally as important as actually putting the money aside. In order to be effective, you must be able to access the funds quickly.
Investments like stocks and retirement accounts often don't allow you to access your money instantly. You might also incur tax penalties and fees if you withdraw the funds.
A better idea that makes your emergency fund accessible anytime you need it is a savings or money market account that you set up at the credit union. With the ease of online banking and access to ATMs, you can transfer and withdraw money at any time of the day or night. Best of all, you won't have to be concerned about fees or tax penalties.
Who Should Have an Emergency Fund?
In a word: everyone. If you have a job and bills that you're responsible for paying, you should have an emergency fund. Imagine if you lost your job and it took you one or two months to find a new one. With your emergency fund, you'll be able to continue paying your bills and providing for your family. You'll be able to do this without racking up credit card balances or seeking out other high-interest, short-term options.
We’re Here to Help!
It's easy to set up an emergency fund. Simply stop by any branch location or give us a call at 800-343-6328. We’ll also show you how to automate funds into your savings, allowing your emergency fund to grow entirely on autopilot.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.