Day 7 - Saving For Emergencies

In life, there will always be emergencies and unexpected events. You won't always be prepared  for them emotionally but that doesn't have to be the case financially.

Setting up an Emergency Fund can help you deal with emergencies such as unplanned large purchases (car repair parts for example) or unexpected financial hardship (your job reduces your hours). Here are some helpful guidelines for setting up your own emergency fund.

Guidelines for Emergency Funds

  1. Your goal should be to have enough money in your emergency fund to cover your expenses (specifically the necessities) for 3 - 6 months. The reason for this is planning for a worst case scenario. For example if you lose your job for no fault of your own like the company filing for bankruptcy, your expenses are fully covered for a reasonable amount of time as your job hunt.

  2. Funds should not be accessed unless absolutely necessary. Using the funds repeatedly to cover incidental non-emergency costs like impulse shopping can drain funds overtime. This can result in you being financially stranded in times of crisis.

  3. Putting your emergency fund in an account that you don't use for day to day purchases and setting up automatic cash transfers from your main checking account can be a great way of saving the money without much thought. Out of sight out of mind as the old saying goes except in this scenario you're being responsible.

  4. Your emergency fund does not have to be entirely cash based. However, whatever cash alternatives you decide to use should be low risk and easy to exchange for hard currency in times of crisis.

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