It may sound strange to think of your emergency fund as your financial bestie, but nothing is quite there for you when the going gets tough like your emergency fund. Let’s take a look at what an emergency fund is and why you need one.
What The Heck Is An Emergency Fund Anyway?
An emergency fund is money that you set aside for those unexpected curveballs that life can sometimes throw at you that also tend to come with a pretty big price tag, such as:
That noise your car makes is actually your radiator and surprise! You need a new one.
What you thought was just food poisoning from that random food truck turns out to be the flu, and you have to take an unexpected trip to the Emergency Room.
Your dishwasher has thrown in the towel and sprung a leak, a big one that needs professional help.
That must-not-miss-meeting at work was just your boss telling you the company is downsizing and you are now unexpectedly out of a job.
Is An Emergency Fund Really Worth It?
Aside from the peace of mind that comes with having a little extra saved for a potentially disastrous occasion, emergency funds help you avoid not having to pay for an unexpected expense with a high-interest loan or credit card, especially if you are already working on paying down your existing credit cards or loans. As the saying goes, the best way to get out of debt is not to keep adding to it.
How Much Savings Does A Bone Fide Emergency Fund Need Anyway?
Emergency Funds aren't a one-size-fits-all kind of thing. There is no magic number or secret formula that will make sense for everyone. A good rule of thumb is to have anywhere from three to six months of living expenses saved in case you lost your job or unexpectedly aggravated an old sports injury and can’t work for several months. Don’t panic if saving up a six months’ worth of expenses seems impossible. The important thing is that you start. Try to set micro goals and save $100 first, then the next $100. Emergency funds don’t grow overnight, but as long as they grow, that’s all that matters.
Where Should I Stash My Emergency Fund?
You have worked hard to save towards your emergency fund. Try and make sure you put your money in a separate savings account, so you aren't tempted to spend it on everyday life. BECU savings accounts are not only NCUA insured, but the money in your savings account earns you interest, so you'll have even more money to put towards emergencies. Learn how to set up an automatic savings plan.
Being besties with money is hard, but your emergency fund will always have your back and is worth the effort.