What is an emergency fund? This is a question that is often asked by people who don’t have one.
An emergency fund is a special fund into which money is deposited on a regular basis. this money is intended to be used in the event of an emergency only. If you have a regular paycheck, a given amount determined by you is put into that fund on a regular basis.
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.
Experts believe that you should have 3-6 months of savings put away in an emergency fund. this means that you take the amount of money you need to live each month and multiply it times four or six. This can seem like a lot of money, especially to someone living with no income. So how do you do it?
If you aren’t getting a paycheck on a regular basis, you can cut back in other ways to make it possible for you to have an emergency fund. For example, instead of eating out, put that money into your fund. Watch movies at home instead of going to the theater. Put the ticket and popcorn money into your fund.
What constitutes an emergency? An emergency is something that must be taken care of right away. If your refrigerator dies, that would be an emergency. If your car just won’t run any more, or needs repairs to make it run, that’s an emergency. Having to travel somewhere for a funeral is an emergency.
When deciding if it is an emergency or not, focus on need rather than want. If your food will spoil without a refrigerator, vs. you want a new refrigerator but yours works fine, the first is the emergency. focus on the needs rather than the wants. It will help you make better decisions.
Connie David is a Money Guide. She helps people find ways to keep more of their hard-earned money.For more information: Click Here