You can’t plan when emergencies happen but you can have a plan for whenever they occur. That plan should include an emergency fund that covers at least three months’ worth of expenses.
What kind of expenses are we talking about? Basically any expense that you would need to cover to maintain your health and safety, and avoid going into debt. This would include (but is not limited to): rent/mortgage, utilities, food, and debt repayments. The general idea is that you want to be able to live off your emergency fund for several months should you lose your job or are unable to work for an extended period of time.
Of course, an emergency fund isn’t just for unemployment; as its name suggests, it’s for emergencies too. But what is an “emergency?”
Emergencies can be context-sensitive. For example, needing to pay for a plane ticket to go on vacation isn’t an emergency but needing to pay for a plane ticket to visit a sick relative could be an emergency. Emergencies can also vary from person to person. A car repair can be an emergency for someone who needs to travel 25 miles to work everyday but it may not be an emergency for a person who works from home.
Make a list of what you consider to be emergencies and only tap into your emergency fund when one of those situations arise. Be honest when making the list: you don’t want to withdraw money from your emergency fund for a non-emergency and end up not having enough money saved to cover a real emergency.
Creating an emergency fund will take time: perhaps months, but most likely years. Don’t let that discourage you though. Save what you can — every little bit helps. If you struggle with saving, try paying yourself first. And if you need help or have any questions, please feel free to contact us or leave a message for us below.