Most recently, I wrote an article regarding one of our short term goals for this year. With all the other expenses and savings that we have to consider, sometimes saving up for an emergency fund is pretty tough. But with a budgeted monthly expense, I know contributing money towards our emergency fund would be possible even if it takes us a couple of years to do so. Here is why having an emergency fund is very important: 

You need to have an emergency for any unexpected or unforeseen cases such as being disabled or sick, getting laid off, huge medical expenses, or a leaky roof to name a few.

  • Disabled or sick - Statistics show that a few people will either get sick or be disabled and be off from work for a few weeks or even a few months at least once in their careers. Sickness could be caused by a car accident, personal accidents, diseases, heart problems, surgeries, maternity leave for women, etc. The older you are the higher the probability that you will get sick and be off from work for a couple of months. For new moms, some of them could be off from work for at least three months. Unless you have a disability insurance, not being able to work and generate income would mean a substantial financial lost for the family. Some states pay disability income but again the income would probably be not enough to cover the monthly expenses.
  • Huge Medical Expenses - as with the sickness stated above, there are some people who might not have medical insurance or have medical insurance but not enough coverage. An emergency fund would at least alleviate the huge medical bills that might pile up.
  • Losing Your Job- When you lose your job, sometimes it takes a few months to find a new one. And depending on the economy, sometimes it would take at least a year to find one that would equal your previous income. Having an emergency fund allows you to cover all your monthly expenses while searching for a job.
  • Emergency Expenses - A leaky roof, a plumbing problem, a broken heater or air conditioning are just a few of the housing problems that might warrant the use of your emergency funds.

Other Tips  To Follow On Having An Emergency Fund

How much to save.  The recommended is 6 months worth of your monthly expenses. Some say you should try to put in as much as one year’s worth. As stated before, sometimes it takes at least a year to replace your previous job!

Where to Keep The Fund.  The best place to keep your emergency fund is putting it in a money market fund that has a checking feature. Money market funds have a higher interest rate than the regular savings account in your local bank. They are also insured by FDIC so your money is safe in case the bank shuts down. The money is very accessible when you need them because most money market funds have an atm and checking feature associated with the account.

The other option is opening a savings account with online banks. Banks like ING and E-Trade offer savings that have interest rates similar to the money market funds. Nowadays, the current interest rate is between 4-6%. This changes depending on the  the current Federal Reserve Interest Rates.

Keep Credit Cards With High Credit Limit - Most of us don’t have the emergency fund initially. While you are still saving up for your emergency fund, you should try to keep your credit cards especially the ones with a high credit limit. I don’t like to use credit cards on a regular purchase but they are very useful tools to provide you some peace of mind knowing that the money would be availabe in case of emergencies.

Use only in case of Emergency.  Sometimes when we know that we have that kind of money sitting in the bank, we are tempted to use it with a promise to put it back. And then something happen drastically that we are not able to replace the money back. We sometimes procrastinate until we end up not replacing the funds. That is why you should only use the fund strictly for emergency purposes only. You need to pretend that the money does not exist at all so you don’t come into a situation where you have to dip into it for unnecessary expenses.