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Over 46% of millennials have $0 saved. 😵Having an emergency fund is one of the most easiest ways to reduce your financial anxiety. An emergency fund is a must have for any unexpected expenses that come up - because after all, life happens and you just can’t anticipate everything.
An emergency fund is money you have set aside (in a bank account) to cover any unexpected expenses that come up. This can include anything from short-term unemployment or emergency situations such as ER visit or your car breaking down.
You should set this fund up before any other types of savings (e.g., retirement, college, downpayment of a home). It can protect you if you lose your income and prevent you from taking on high-interest debt such as loans or credit cards, losing your housing, or going into bankruptcy. Especially if you have debt, the best way to get out of it is to prevent yourself from going further into debt.
We usually recommend up to 6 months in living expenses. For example, if you lose your job you have the time to fund your expenses and also find a new one. Of course, 6 months can be daunting and the important thing is taking the first step – we recommend that even saving $500 as a first step can benefit you.
You need to put your emergency fund in an account you can easily access for emergencies. A high-yield savings account is a good idea – it can help you earn interest, it’s federally insured up to $250,000, and you can access your money when you need it. It’s a good idea to have a separate account for your emergency fund and any savings above that, so you won’t touch this money unless necessary.
Here is a list of high-interest savings accounts: https://www.withsnowball.com/blog/the-highest-apr-savings-accounts-2018
Remember that an emergency fund is for exactly that – for emergencies. An emergency is usually something that affects your health or ability to earn money.
What are some good examples?
What wouldn’t you use your emergency fund for?
Putting in any amount of money (even starting with $5) is the first crucial step in starting an emergency fund. After that, there are ways to find money in your life.