No one hopes for a life crisis. Unfortunately, emergencies happen and they happen at the most unexpected of times. We can’t prevent them or even see them coming, but there is one proactive step you can take: fully fund an emergency fund. While the exact amount depends on your specific situation and personal preferences, generally having 3 – 6 months’ worth of fixed living expenses saved is sufficient.
Now, 3 – 6 months’ worth of expenses may seem like a daunting task when you’re still paying off student loans, saving for retirement, and raising children. So if you’re starting from scratch or if you want to build a bigger cushion than what you have now, start small. Have a small amount ($20? $50?) deducted from each paycheck and automatically deposited into an account. You’ll be surprised how quickly it will add up. Keep this money liquid and easily accessible. Therefore, opening a savings account at your bank or credit union would be an appropriate vehicle for an emergency fund. The emergency fund won’t prevent emergencies from happening, but it will hopefully prevent the emergency from becoming a financial emergency too.
- Written by Elizabeth Braden, Worley Erhart-Graves Financial Advisors