subject: What Is An Emergency Fund? [print this page] What is an emergency fund? This is a question that is often asked by people who don't have one.
It used to be that people had job security. A person might hold a job from the age of 18 until he or she retired at the age of 65. Today it is estimated that an individual could have more than 1 career during a working lifetime, even as many as three or four. Today,, many people are finding themselves without an income, due to layoffs, down-sizing and lack of available jobs. so what happens when the car breaks down or the refrigerator dies?
With no emergency fun, a person or family would have to get along with out the car, or put repairs on a credit card. While this make take care of the immediate problem, that bill will still have to be paid. the more months you have a balance on a credit card, the more you pay in interest.
If there is an emergency, why not just put it on a credit card. Any portion of your credit card bill that you don't pay each month is charged interest. this is the credit card company's way of getting paid to lend you money, just as a bank would if you had borrowed the money from that institution. Every month there is a balance on your credit card after you make a payment, more interest is charged. Instead of paying the credit card company, why not have money saved to use instead?
What constitutes an emergency? an emergency is something that has to be taken care of immediately. If an appliance breaks down, your fund might be used to replace it. I'm talking about major appliances such as a stove or refrigerator. I am not talking about things that you could do without, like a blender. We are talking the big ticket items. If your car breaks down, or someone in another part of the country dies, you can use the money in your emergency fund to get the car fixed, replace it, or buy a plane ticket to attend the funeral.
How much should I have in my emergency fund? Experts recommend that there be enough money to support you for 3-6 months in your emergency fund. so, if you make $3,000 a month, you should have between $12,000 and $18,000 in your fund. then if you lose your job, you will have the money to live for a few months if it takes a while to find a job.
Be sensible. Use the fund when you really need to, not when you want to. these are two different circumstances. focus on the need, and you should do pretty well.
