Why You Need an Emergency Fund
March 30, 2023
No matter what your financial situation is, it’s a good idea to have an emergency fund for those unplanned expenses life throws your way. An emergency fund can help you stay on track financially when the unexpected happens.
What is an emergency fund and why is it important?
An emergency fund is a great way to help cover unexpected expenses such as medical costs, car or home repairs, or some other unplanned bill. It also can be used to temporarily cover your expenses if you lose your job or otherwise have your income reduced. An emergency fund can help you achieve financial security and prevent you from accumulating more debt. It also allows you to stay focused on your other financial goals rather than having to “pause” your saving to address unplanned events.
A good rule of thumb is to have enough in your emergency fund to cover three to six months’ worth of expenses. For many, that can be a large number that may seem overwhelming. Even if you are starting from zero, regularly setting money aside will eventually get you to your goal, so don’t get discouraged.
How do you get started?
If you don’t already have an emergency fund, don’t worry — it’s never too late to start. Start by calculating your monthly living expenses including mortgage or rent, utilities, groceries, and vehicle costs. Then, set an attainable goal — maybe $50 or $100 per month — and build from there until you can cover your living expenses for at least three months.
Once you have a savings goal, see what your financial institution has to offer. There may be accounts that can help you earn more on your savings. It can be as simple as using your mobile app to add a new account.
Another tip is to set up direct deposit so that a portion of your paycheck is automatically added to your emergency fund. That way, you won’t have to worry about remembering to put money into the fund when you get paid — or be tempted to spend it instead!
An emergency fund will help you develop savings habits and establish financial security. OUCU’s Savings BuilderSM account helps you grow your savings faster by paying you higher dividends on your initial contributions. To learn more, visit http://www.oucreditunion.org/savingsbuilder.
Hopefully, the next time that you have an expense pop up, your emergency fund will give you a cushion for it.