Emergency Fund – Putting Money Into an Emergency Fund That Will See You Through the Rough Times

An emergency fund is a special personal budget line available as a safety net in case of unexpected expenses or injuries. The funds are usually held in a bank account and can be accessed immediately to help pay medical bills, provide for families of employees who become sick, or cover other emergency expenses. For people who do not regularly follow their budget plans, having an emergency fund may be helpful because it helps them plan for the future. By setting aside money to fund emergencies, people are less likely to spend the money they set aside. This prevents a large build up of debt, which can be a problem if interest rates on credit cards and loans go up unexpectedly.

Most people are used to budgeting on a month-to-month basis. However, when something unexpected happens, it can be much harder to figure out where to go to get the money to pay for it. Having an emergency fund allows someone to focus on long-term financial goals, like building a nest egg for the future. When you have emergency funds available to cover the costs of medical care and other long-term expenses, you are less likely to fall into debt after an unexpected medical issue.

People can fall into debt for many reasons, but the most common reason is job loss. If you suddenly lose your job, you need to budget for the period it will take you to find another job. If you are caring for a family while being forced to take a pay cut, the stress of the situation can make even household expenses difficult to meet. If you have an emergency fund set up to pay for sudden medical expenses, you will not be tempted to use the money on non-emergency expenses, and you will have the money to cover unexpected bills and medical expenses, which reduce stress and anxiety. If you have access to a savings account and a regular job, you can save the money that would normally go toward debt to fund your future goals.

You may also want to use your emergency fund to supplement your savings account. If you regularly draw from your savings account, you may not be able to withdraw all of the extra money, especially if you have been recently divorced or had unexpected financial changes. If you can access the extra money through an emergency fund, however, you can use it to build your savings. This will allow you to have extra money in case you need it, and you may be able to use the extra money to build your retirement funds.

In her book, The Divorce Procedure, Patti McBrien says that it usually takes four months to get a handle on your finances, and it usually takes nine months to get your debt back under control. For many people, it takes two years or more to fully establish their emergency savings accounts. Two years is the average time it takes to save enough money to take an emergency fund and cover major expenses, like a house payment, car payment, or health insurance bill. If you put aside a certain amount each month that you are sure to have at least one month’s supply of income, you can make sure that you have the money you need to cover the month’s expenses.

So, put aside your credit cards and take out a high interest savings account. Invest the money you withdraw into the emergency fund. Save more than you spend each week, but try to save at least a little more than you earn. That way, when the “rainy day” comes, you’ll have the emergency fund to see you through it.

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