You’re confident that you’re financially secure. You pay your bills on time. You have a sensible budget. You aren’t overwhelmed with debts. Everything seems to be going smoothly.
But what if something went wrong? Would you be able to handle an emergency expense? Or would you struggle? Only 40% of Americans have admitted that they could handle a $1000 emergency expense using their savings alone — the rest would have trouble covering the expense.
It’s clear that if you really want to be financially secure, you need to build yourself an emergency fund.
What Is an Emergency Fund?
An emergency fund is a collection of savings reserved for unplanned, urgent costs. Your car stalls on the way to work. Your furnace stops running in the winter. A pipe in your basement starts leaking. Essentially, it’s a self-made safety net that can help you manage any problem that your budget wasn’t prepared for.
This isn’t the full potential of an emergency fund. If you save enough, you can use it to withstand big life upheavals. So, if you lose your job or get sick, you could use these savings to keep yourself afloat after your main source of income is jeopardized.
What Can You Do If You Don’t Have an Emergency Fund?
If you don’t have an emergency fund, you should start building one right away. Even having a little bit of money saved inside of it could be useful in the future.
In the meantime, you should give yourself a back-up plan for emergencies that your budget can’t handle. This can tide you over until your new fund has a considerable amount of savings inside of it.
One effective safety net that you could use is a line of credit. The open-end credit tool allows you to withdraw funds (within your approved credit limit) and deposit them into your bank account upon request. As you can see, that would come in handy when you encounter an unexpected, urgent cost that you don’t have enough savings for. Click here to see how you get an online line of credit and what you will need to qualify for one.
How Much Should You Have in Your Emergency Fund?
Financial experts have differing opinions on what your target should be for emergency savings. But one of the most popular beliefs is that you should have a minimum of three to six months’ worth of expenses saved up in your fund. That amount can easily help you cover minor emergencies and keep you afloat for several months during a major life upheaval.
How Can You Start?
Look at your budget and see how much you can reasonably set aside each month for the fund. If it doesn’t feel like enough, you can adjust your variable expenses to bulk up your savings in a hurry. Here are some ways that you can accomplish this:
- Don’t order as much takeout or fast food
- Use coupons when shopping
- Cancel some streaming services
- Call service providers and ask for lower rates
Don’t go overboard and try to save too much in a hurry. That could push you into a risky financial spot and defeat the purpose of this entire endeavor.
You never know when something could go wrong, which is why it’s always wise to prepare for the worst. An emergency fund is just the thing to get you through the worst of the worst.