An emergency fund is simply some reserve cash that you’ll have access to in case of, well, an emergency. For example, an emergency fund can be valuable if you suddenly lose your job or have a medical procedure.
However, according to a new Bankrate.com report, about 67% of the people surveyed said they didn’t have a sufficient safety net that could cover six months of no income. Even worse, almost half the people who responded to the survey had less than three month’s worth of savings.
While you may not suspect you’re going to lose your job, having an emergency fund allows you to be prepared so you don’t have to rely on an emergency cash advance when things get hard.
Even though an emergency cash advance can get you out of trouble once, it’s not a way to support yourself and be financially secure. Rather, an emergency fund is!
Rain or Shine
When you have an emergency fund, you’ll be able to make sure that you can take care of your expenses, rain or shine.
That means that even if you lose your job or are hit with unexpected expenses, you’ll be able to weather the storm and make it through. For example, you may lose your job, but even if it takes you three months to find a new one, you’ll still be able to live comfortably in the meantime. It goes without saying, but you should reduce expenses as much as possible while searching for a new job.
Once you get a new job, you can build your emergency fund back up. Simply having that emergency fund means that you don’t have to go into panic mode and start finding cheaper housing or take a job that’s below your pay grade just to put food on the table.
Start Saving Now
When it comes to building an emergency fund you need to start now. Before you do anything, put a percentage of each paycheck in a special account. The exact percentage is up to you, but saving about 10% of your paycheck is a great number to start with.