How protective is your emergency fund?

By Jennifer Langley

Everyone should have an emergency fund regardless of their age or financial status. Not only can one of these funds protect you in the event of an emergency, but they are also a great way to learn about the importance of saving money. Even if you are just getting ready to move out of your parents' house for the first time, you should already be considering how much money you can put into your emergency fund on a monthly basis.

How to build an emergency fund

Most people in the U.S. live paycheck to paycheck, and this can make it very difficult to put any money aside. Unfortunately, these are also the same people who will find themselves in the most financial trouble if even one thing goes wrong. Therefore, it is necessary to make some sacrifices in order to build an emergency fund.


Even if you can only afford to put aside $5 a week, it is better than nothing, and over the course of the year you will save $260. Hopefully you will not have to touch the fund for many years, but if you end up with an unexpected car repair or other issue, it will be much better to have even $260 set aside than no money at all.

Why do I need an emergency fund?

Life is unpredictable, and it is always a bad idea to use a credit card to deal with an emergency situation, especially if you have limited financial resources. Consider for a moment where you are going to get the monthly credit card payments from before you simply move forward with a credit card purchase.

If you do not have an extra $100 a month to make a credit card payment, then you are not in a good position to rely on a credit card. Instead, you should have your own emergency fund in place that will help you replace your transmission, pay for a medical bill or cover your expenses if you miss a couple of days of work due to getting the flu.

No matter how well we take care of ourselves and our possessions, things will inevitably break down and we will eventually become sick. Therefore, the only way to keep ourselves from becoming buried by debt is to dip into an emergency fund instead.

What if I really cannot afford an emergency fund?

There are very few people who actually spend every dollar that they have in a careful way. Consider what your current bills are, and whether or not you actually need to keep all of them the way that they are. For example, if you have premium cable channels, you could easily save $20 or more a month to put into an emergency fund by canceling them.

Keep in mind that there are cheaper entertainment alternatives such as Netflix Instant Streaming if you are a movie addict. Another thing that a lot of people spend money on is a daily cup of coffee. Instead of getting it from a restaurant, you should make your own. The money that you save will give you a nice start to your emergency fund.

What if my emergency fund does not cover my expenses?

There will be some instances when your emergency fund will not have enough in it to cover all of your expenses, but it is always better to cover as much of the cost as possible from your fund. That way, if you do need to get a loan or use a credit card, you will be able to pay it back more quickly and in smaller installments.

This article was written by Jennifer Langley. Jennifer is an avid finance writer who stresses the importance of protecting oneself before venturing out into any endeavor.

* All images US-PDGov