You Need an Emergency Fund. Really, You Do!

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I was recently talking to a friend who told me that she never learned how to save money. Her family never saved, so she never saved. I learned that her family’s financial mantra is “you can’t take your money to the grave, so you might as well spend it today.” Although I’ve heard this philosophy, I was surprised to know that someone so close to me believed it!

Knowing this wasn’t sound financial wisdom, I decided to introduce my friend to the phrase “saving for a rainy day.” It refers to the idea of a savings account where you stash enough money for a “rainy” (crappy) day. Things that could cause said “rainy” day include unexpected emergencies such as getting laid off, illness, large unforeseen expenses (car accident, leaky roof, etc.), and so on. The purpose of the emergency fund is to provide you with the resources to deal with the unexpected challenges that life can something put in your path.

There is a general rule of thumb for saving up enough money to deal with the unexpected. Most financial planners will tell you that you need to save up enough money to cover three to six months of expenses (rent/mortgage, transportation, food, bills, etc.) for your emergency fund. The money in this fund should be liquid, meaning you can quickly, easy access it. This way, if you are laid off/get sick/incur a large expense, you can easily withdraw the money you need to support yourself while you get back on your feet.

If the idea of saving up six months worth of bills seems overwhelming, start out by setting a series of more immediately attainable goals. Try to start by saving up one week’s worth of expenses. Once you’ve got one week, work towards saving up one month’s worth of expenses. From there, work towards two months, and so on. Setting up attainable, incremental goals will help you feel feel good about the milestones you reach on your way to setting up your emergency fund.

It’s true you can’t take your money with you after this life, but setting up your emergency fund can help you deal with the financial challenges that life brings. You never know when your “rainy day” will come, so get prepared and start saving.

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6 thoughts on “You Need an Emergency Fund. Really, You Do!

  1. Our recent “rainy day” was when hurricane sandy flooded our car. We sure were glad we had the fund built up so we could buy another car with cash and not go into debt.

    • I’m sure it was hard to part with your hard earned savings, but I bet it made things a lot easier. I live in a Sandy affected area too. I’m sorry to hear your car was wrecked, but glad that it was the only thing that you lost. Having read your blog, I’m sure you are hard at work replenishing your rainy day fund.

    • Agreed. When you put it like that, it’s scary to think of how much we have to save aside from an emergency fund – specifically, for retirement. In 60-70 years, who knows what inflation will do to our hard earned dollars. Definitely no YOLO for me!

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