Saving for Emergencies
Most people don't realize how unprepared they are for an emergency until it's too late.
At any time, you could experience:
- illness or injury,
- fees for supplies or school-related field trips,
- a car that needs a new tire or a repair,
- a furnace in need of repair or replacing,
- damage to your home because of a storm, or
- the unfortunate sickness or death of a loved one.
When you have savings set aside, covering unexpected expenses or emergencies won’t impact your day-to-day finances or cause you to accumulate additional debt. When people don’t have emergency savings, they often borrow money to cover these expenses. People commonly use:
- Loans from family members or friends
- Credit cards
- Payday or signature loans
- Car title loans
- Pawn shop loans
These debts can take many months or longer to repay. And with car title and pawn shop loans, people risk losing the car or asset used to secure loan if they do not follow the terms of the loan.
How much should be in your emergency fund? Generally, 3- to 6-months of living expenses is recommended. But, this may seem like a goal that is too big. If you don’t have an emergency savings fund, consider setting your goal at $500, or $10 per week for a year. This amount can over a lot of common emergencies or unexpected expenses: a speeding ticket, an urgent care clinic visit, many car repairs, unexpected school-or extracurricular-related expenses, an appliance repair, and so on. Once you save $500, try saving $1,000.
In order to have the emergency funds when you need them, put them somewhere safe, secure and separate from where you keep your money for daily living expenses. This ensures you have it when you need it.