Emergency Funds – The What, Why, and How

Picture this – It's the middle of winter, and your furnace breaks down, or you have a great job, but the markets crash, and you are laid off. 

These are bleak scenarios that no one wants to imagine happening to themselves, but will you be financially prepared if it ever did? If not, then now is the time to start building your emergency fund. 

What Is an Emergency Fund?

An emergency fund or rainy day fund is money you set aside to prepare for unforeseen expenses or emergencies. 

You can use it to pay for unexpected expenses, such as car repairs, home repairs, replacing your furnace, or replacing your income in case of job loss or unemployment. 

Why Is an Emergency Fund Important?

Emergency funds are an essential part of any financial plan. They provide a cushion in case of unexpected expenses or emergencies. 

As per a Bankrate survey, over 25% of Americans do not have any emergency savings at all. Out of the 75% who have an emergency fund, most do not have enough savings to last three months. 

Emergency funds can help you in unexpected financial emergencies. Without it, you may have to borrow money or use your credit cards to pay for unforeseen expenses, leading to debt and financial problems. 

How Much Money Is Required in an Emergency Fund?

Most experts recommend having at least three to six months' worth of living expenses saved in an emergency fund. 

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