Dave Mortach on Building an Emergency Fund

Having a sufficient emergency fund is very important to ensure that you have the necessary resources to meet your needs. However, establishing and maintaining a dedicated fund can take a lot of work.

A survey conducted in 2022 by Bankrate revealed that only 44% of Americans could afford to cover a $1,000 emergency. Also, respondents stated that rising inflation had caused them to save less for unexpected expenses.

Even if you have a high credit card balance or have a running balance in a checking account, having an emergency fund can still be beneficial. It should be kept separate from your daily cash so that it can be accessed immediately.

Even if you haven’t experienced an emergency situation in several years, it’s still vital to have a fund set aside.

Savings Account

A money market or basic savings account can be used to set up an emergency fund. It should be liquid, safe, and not invested in bonds or stocks.

Annual Yield

A savings account with a small annual yield is a good choice. However, it’s essential to remember that some accounts may have minimum deposit requirements or carry yearly fees.

Have Six Months of Expenses

You should have at least three to six months’ worth of expenses for emergencies. The amount that you need to allocate for emergencies will vary depending on your situation. For instance, if you have a family and are self-employed, you should have at least eight months’ worth of expenses set aside.

Begin with Small Amounts

If you don’t have enough money immediately, start small and establish an automatic transfer to a savings account. For instance, you can set aside $100 a month.

Only Use it in Real Emergencies

You should only use the emergency fund for real emergencies. These include getting your car fixed, paying a medical bill, and losing your job.

Replenish Your Funds

If you draw on the funds, ensure you replenish the account. Sometimes multiple emergencies occur in quick succession, and you don’t want to be caught without funds.

A sufficient emergency fund can help you manage your expenses even if you don’t usually get unexpected bills.

Originally published at https://davemortach.co on February 16, 2023.