There is a freedom that comes from knowing you have a financial cushion!
Having an emergency fund allows us to turn a crisis into an inconvenience. Having a financial cushion provides a sense of peace. Today, I am sharing with you 5 W’s of Emergency Funds.
Who needs an emergency fund? What is an emergency fund? Where should I keep my emergency fund? When should I use my emergency fund? Why do I need an emergency fund?
Before we dive in, I want to define the terms: emergency and fund.
An emergency is defined by Google as “ a serious, unexpected, often dangerous situation requiring immediate action.
A fund is defined by Google as “a sum of money saved or made available for a particular purpose”.
My definition of an emergency fund is “a sum of money saved for serious unexpected expense or situation.”
Now that we are on the same page, let’s get into the 5 W’s:
#1: What is an emergency fund?
An emergency fund is simply a fund to cover unexpected expenses. Life is going to happen. Emergencies will occur and it’s important to have money saved for the inconvenience.
What is considered an unexpected expense?
The keyword here is unexpected. Unexpected simply means unanticipated, unforeseen. Meaning you had no idea that this was going to occur. An unexpected expense can be anything from, your basement flooding to getting laid off from your job. Those typically are unexpected. Buying Christmas gifts isn’t an emergency, Christmas will always be December 25th. Plan accordingly.
What type of emergencies should I save for?
Typically many people save for five areas of their lives. Please note that this list is only the basics. Please save for your family’s specific needs.
Car repairs.
Home repairs.
Unemployment- job loss, time away from work.
Unexpected medical expenses.
Unexpected family emergencies.
#2 Who needs an emergency fund?
Everyone! Life will happen to everyone, having a financial cushion can provide a small sense of peace during the midst of a storm.
#3 Where should I keep my emergency fund?
Keep your money somewhere accessible. This is not an investment account. You want to be able to access the money easily and quickly. I recommend storing your emergency fund in an online high yield savings account.
#4 When should I save an emergency fund?
Save now! Before you attempt to pay off any debt, I highly recommend saving a starter emergency fund with at least $500- $1,000.
When should I use my emergency fund?
Emergency funds are different from savings accounts. You should use your emergency fund only when it’s a serious, unexpected emergency. Once you’ve dipped into your emergency fund, it is also important to replenish your emergency fund.
#5: Why should you have an emergency fund?
Having an emergency fund allows you to turn a crisis into an inconvenience. It allows you to use the money you have saved for emergencies instead of swiping a credit card or taking out a loan.
Bonus: How much should I save for my emergency fund.
Always save what’s comfortable for your specific living situation. Many financial experts suggest saving 3- 6 months of expenses. If you’re not sure what that dollar amount is, start off by making a monthly budget and you will see how much it’ll take to run your household for a month.
Now that you know the 5’w of Emergency Funds, I challenge you to make building an emergency fund your top priority! No one has ever regretted saving money! 😃
Until next time,
You can WIN with money,
Jeanetta
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