Family Finances: The Importance of an Emergency Fund
Whether you’ve already started a family or are pregnant with your first child, making sure that you have prepared your finances is majorly important. One of the key factors to having financial stability as a family is to make sure that you’re set up with an emergency fund. The following tips will help you understand, create and use an emergency fund effectively.
What is an Emergency Fund?
Initially, it’s vital to exactly what an emergency fund is and what it entails. There are many reasons to create an emergency fund, since we all know life can throw us some unexpected curve balls. An emergency fund is just that; a safety net that is used when you have a challenging financial situation that your regular income cannot cover. Having this safety net for those just-in-case moments will ensure that you will not have to rely on a credit card or a loan to help you get out of it. Constantly using your credit card or a loan as a backbone for money-related troubles can create more financial trouble down the line.
How Do I Create One?
Now that you know what the general understanding of an emergency fund is, you can better enter the process of creating one! Luckily, establishing an emergency fund is fairly simple, just ensure you’re opening it into another account that’s completely separate from your main checking and savings accounts. While in-person banks are traditionally more common for organizing a fund, many online platforms are rising in popularity as an increasingly convenient way to manage more than one account. Find a financial institution that has an app for managing your savings account through your mobile device. Since you never know when you’ll need to access your money, it is important that you can easily log into your financial information from anywhere.
When Should You Use An Emergency Fund?
How does one know when to use their emergency fund? This is determined by how much you have saved, and the overall cost of the unexpected expense. Knowing when you should tap into your safety net and when you should leave is an imperative part of managing your money successfully. Even though it feels great to have additional money set off to the side, your emergency fund should be used for unexpected, necessary and urgent matters only. These can include emergency doctor visits or car accidents.
How Much Should Be In My Emergency Fund?
Ideally, you want to make sure that you have enough money in your emergency fund to cover your monthly expenses for 3 and 6 months. Having a safety net that can get you and your family through an extended period of time is key, especially during the pandemic we’re experiencing today. Unfortunately, this has left many people without a steady income. This is where an emergency fund comes in handy, and helps to ensure that financial issues don’t occur later on in life.
It is never too late to create an emergency fund, since having a safety net is a crucial piece to having good financial health. An emergency fund should be located in a separate account that is to be used only for those unexpected and urgent matters.
Thank you,
Glenda, Charlie and David Cates
