Why You Should Start Your Emergency Fund Right Now
Today I want to share with you some common unexpected expenses that you may come across at some point in your life, and why you should start preparing for them now. It is more than likely most of us do not budget for these types of expenses. This leaves us wondering where we will find the money to pay for them. No matter how financially prepared you think you are, life will always throw something unexpected your way!
In this blog post, I will be explaining to you what an emergency fund is and why you need to start one straight away.
What is an emergency fund?
An emergency fund is money that has been set aside to cover any unexpected expenses that life throws your way. This money will allow you to live for a few months if you happen to lose your job, require a major repair to your car or home or come across a debilitating illness. With an emergency fund, you can be prepared to pay for unexpected emergencies without having to turn to credit cards, loans or other borrowing options.
How much should be in my emergency fund?
An emergency fund should contain enough money to cover between three and six months’ worth of expenses, according to Dave Ramsey. For example, if your monthly expenses total £2,000 a month – including living costs such as mortgage repayments and food – you would need to set aside at least £6,000 (three months) to as much as £12,000 (six months).
Why do I need an emergency fund?
Now that you know what an emergency fund is, you may be thinking ‘but Lauren, why are you telling me to create one?’ Well lovely reader, I am about to tell you why:
- Unexpected medical, dental and vision expenses
- Your pet becomes ill
- Your laptop breaks
- Your car breaks down or you need to purchase a new car
- You have a plumbing or electrical problem that needs to be fixed
- You become ill and don’t get paid sick leave at work
- Your mobile phone breaks
- Your washer/dryer/fridge/dishwasher/oven breaks
- You have a family emergency
- You (or your partner) unexpectedly gets pregnant
- You are evicted from your home
- You receive an unexpected bill
There are several ways you can prepare for an unexpected expense. The first is to save more money a month. Set aside a small amount in your monthly budget for your emergency fund, and you will have no added stress when an unexpected cost pops up.
To create an emergency fund, open a savings account and make a commitment to put money in every month. You could even set up a standing order so your bank does it automatically. This way, you won’t even see the money enter your account before it has to go back out again. This is called paying yourself first.
If you can’t afford to save a lot of money from your income, you can start small – anything is better than nothing! For example, saving just £3 a day adds up to £1,095 a year. You can do this by taking coffee in a flask to work to stop you from buying one on the way in or you can sacrifice your £3 meal deal by making your lunch at home.
I hope this post has given you some ideas on the unexpected costs that may pop up and why you should have an emergency fund to deal with them. Tweet me @BritOnABudget1 and tell me how long you have been saving into your emergency fund!