- What is an emergency fund?
- How many do you need?
- How to build an emergency fund
Emergency funds are a powerful tool for managing your finances. Having an emergency fund will help you deal with unexpected expenses and save you from borrowing money with interest. But how do emergency funds work?
What is an emergency fund?
An emergency fund is a “set aside” fund of money to help you cover any unexpected expenses. This fund works as a contingency plan to help cover costs if you lose your job, have medical bills, home repairs, or any other emergency expense.
How many do you need?
Your emergency fund will vary depending on your income and expenses, but ideally it should cover three to six months of your total expenses. Keep in mind that your emergency fund is meant to help you with your monthly expenses. It is not a fund intended to replace all of your income.
How to build an emergency fund
You should start building your emergency fund by setting savings goals. This will help you determine how much money to set aside based on your personal finances. You then need to compare your expenses to your income. Doing this will give you a better idea of how much you can save from month to month. Finally, it’s best to automate your savings to ensure you keep putting money aside.
IN A WORD
Emergency funds help protect your finances and they will help you cover any unexpected expenses that may arise. When building your fund, you need to consider your monthly income and expenses to create the best plan for yourself. Learn more about Credit.