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An emergency fund is more like a savings account. Emergency
funds give you additional buying power when your income is
low, or when you have run out of money. For example, if you
have a home, and your furnace breaks down you need money to
fix the furnace, this is a good example of when an emergency
fund would come in handy. It is difficult to wait until next
payday to fix the furnace when it is cold outside and the
children are shivering. How Much Emergency Funds Should You Have While every financial situation is different it is quite clear that if you were to lose your job you would need at least a few weeks to find a new job. As this is an extreme circumstance, you should have at least six months emergency funds built up to get you through paying your bills until you have a new steady job. Credit Cards are Not Emergency Funds Many people use their credit cards to get through 'times' when they don't have enough money but this can be dangerous. It can be dangerous because if you don't have the income to cover the fees and purchases made on the credit card it is not going to do your finances any good it will only make you fall further behind. Save for a Rainy Day The rainy day is when you lose your job. The rainy day is when you broke your arm and can't go to work. The rainy day is when you were sick for a week and couldn't get to work at all. All of these are examples of rainy days and reasons for why you should have an emergency fund. How Much Should You Really Save Think about all the bills you pay for one month, and then add on to that the things you need for one month. Do you have enough money saved to get you through that if you didn't have a job or if you couldn't get to work? Now, think about it if you couldn't get to work for three months, or six months, and add those figures on a sheet of paper. That new bigger amount is how much you should really consider having in your emergency fund, or if you would like to call it, your rainy day fund. Think of the fund like credit card rewards you can use later. How Can You Save Money You can save money every week. While it is difficult to save money all at one time, you can do it over a few months and be prepared for the future. You should consider saving just ten dollars a week, or if you can twenty dollars, and you can build yourself a savings account, an emergency fund over time. Having some amount as a start is going to be better than never starting an emergency fund at all. Cut back on eating out is a good start in saving money. Cut back on the trips you make in your car that is another way of saving a little money. Cut back on the price of gifts that you give to others, make your gifts more meaningful and less expensive, which will help you save money too. Think about the future and save money at the same time. Learn more about credit card rewards today! |