I wanted to touch on a key aspect of getting your financial situation under control and that is creating an emergency fund. While many people may know about their importance, there’s always value in hammering home the fundamentals. For those that haven’t started yet, an emergency fund is an amount of money set aside to handle unexpected expenses such as job loss, healthcare expenses, unexpected home repairs, car trouble, or any other unexpected situation that arises. Obviously the amount of an emergency fund will vary depending on each person, but the general recommendation is 3-6 months of expenses so you can effectively deal with any situation that arises. There are many benefits to building your emergency fund, but the three I point to are these:
Reduces Stress-Having a built up fund for life’s unexpected situations means you won’t be adding monetary worries when something does pop up. An emergency fund also acts like a safety net, so you’re prepared for adverse situations instead of hoping they never happen.
Reduces Bad Decision Making-By building up this emergency fund it means that when you do need to use it, it will be waiting for you. That means not needing to borrow money at high interest rates or put yourself in a position where you need to make a bad financial decision to simply get through.
Reduces Unnecessary Spending-By creating a separate fund for emergencies, you can put that money “out of mind” and not take it into consideration when there’s a large purchase you want to make. It’s easy to make spur of the moment decisions to buy something you don’t need when you have money on your nearest debit card, but by separating this fund out, you’re less likely to dip into it without cause.
If you have further questions about how much should be in the emergency fund or where the best place to create the fund would be, reach out and I’d be happy to discuss it.