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If you are new to the financial world, then emergency fund might be totally foreign to you. However, you’ll pretty soon find out that everyone should know and should have it.


So first things first what exactly is an emergency fund?

Basically, it is a pool of money that you set aside to cover any expenses that you did not plan for or saved for. It is the money that you use for something that needs to be taken care of right away.

It is not the money that you can use for an insurance premium, a vacation, or a new phone or computer.


The primary purpose of this fund is to take care of emergency expenses, meaning expenses that are unexpected, urgent, and need to be taken care of immediately.


Peace of Mind

When you have emergency fund, you will not be stressing out on unexpected expenses. You will be able to rest better.

Prevent Debt

The best thing about having an emergency fund is that it will prevent you from going into debt. When an unexpected expense arises, you do not have to use a credit card or borrow money to deal with that expense.

Protect Your Savings

Life always has a way of throwing us unexpected hurdles in life, and that includes unexpected expenses. These hurdles most often can put a big dent on your savings. However, if you have an emergency fund in place then you do not have to worry about it.

Emergency Fund Amount

Now that you know what an emergency fund is, you might be wondering how much should you have in your fund. The rule of thumb is to start with $1000. This amount is usually enough to cover all or most of the unexpected expense.

Once you have that in place, you can start taking care of your debt if you have any. If not, you can start working on fully funding your emergency fund. The fully funded amount is equal to a 3-6 months of expenses. So for example, if your total monthly expense is $2000, then work on saving $6000-$12000.

Your fully funded emergency fund will be able to support you and your family in the event of job loss or disability until you can get back to work.

How To Save For Emergency Fund

Create A Budget

If you do not have a budget yet, start one. If you do not know how, head over to How To Create A Budget When You Don’t Know How to learn more.

When you have a budget, you will have an idea of how much money is coming in and how much is left after all expenses are accounted for.

Put Surplus Money To a Interest Bearing Saving Account

Open up a separate savings account for your fund. Make sure that it has a reasonable interest rate and you will have easy access to it if you need it.

You will then save all the surplus money from your budget into this account until you reach $1000. If you do not have debt to pay off, continue funding this account until it is fully funded.

Reduce Expenses

Re-evaluate your monthly expenses and trim as much as you can. Maybe you can downgrade your cable since you only have time to watch the news. Or, skip Friday night outs out this month. You can even ditch the cafeteria at work and pack your lunch.

Work Overtime

Picking up overtime hours in the evenings or weekends can fast track your fund. Just make sure to send the extra income straight to the emergency fund account.

Pick Up A Side Hustle

If your regular job does not offer overtime opportunities, there are a lot of side hustles that you can do. If you love writing, you can do some freelance writing. Driving for ride share companies or doing deliveries are some popular side gigs.

Last Thing You Need To Know

Emergency fund is something that you need to work on now so you can thank yourself later. Having an emergency fund in place will help reduce stress and will help you live your life better.