What is an emergency fund and how do I build one?
Are you prepared for a rainy day? Do you have enough cash in your account if your washing machine breaks down and needs to be replaced? What about for expected medical expenses? It’s a good idea to have an emergency fund for life’s unexpected curve balls so you’re protected when things go wrong.
What is an emergency fund?
An emergency fund is an account where you have enough cash readily available to you to cover the cost of any unexpected and urgent expenses. It’ll help prevent you from having to borrow money to pay for the expenses and give you peace of mind that you’re covered for the future.
How much do I need in my emergency fund?
The exact dollar amount will vary person to person. A single person, renting an apartment in the city will need a different amount to a family with a mortgage in the suburbs. A good rule of thumb is to have enough saved to cover 3 to 6 months of your expenses.
How do I build an emergency fund?
Start off small and incorporate automatic payments to your emergency fund into your budget. Saving a small amount regularly is an easy way to build up your fund. Even saving $20 a week will get you $1,040 in a year, which is a great starting point.
When should I use my emergency fund?
Your emergency fund should only be used in the event of an emergency. It’s as simple as that! Ask yourself, “Is it urgent, necessary, and unavoidable?” Remember to top up your emergency fund once you’re back on your feet so you’re prepared for the future.
The information in this article is correct as at 4 May 2020. Credit Savvy endeavours to provide accurate information and no responsibility is taken for errors or oversights.