An Emergency Fund Can Keep You In Hot Water
One of the basic tools used in personal finance is the emergency fund. The emergency fund does many things for you but the most important thing it does is it keeps you out of debt.
For many people an emergency fund is a foreign concept, saving money for a rainy day, isn’t that what grandma used to say? If you want to stay out of debt having an emergency fund is a necessity. I recently used my emergency fund an I was glad I had prepared and set it up long ago.
In my emergency fund I have around $5000. This isn’t really enough to be considered fully funded. You really should have 3 to 6 months of expenses in a liquid account nothing to fancy. A money market or some interest bearing account. The reason it shouldn’t be invested is you need the full amount accessible. If it is invested you could lose principle or may not want to use it if it is appreciating. This money is only for emergencies.
Incidents that are considered emergencies consist of anything unforeseen or unplanned for. Buying a car is not an emergency. A car purchase is an anticipated and planable event. Emergencies funds are for emergencies only.
I found having an emergency fund to come in very handy. It was a few years ago that my water heater sprung a leak. It was something that was not repairable so I had to purchase a new one.
In the old days before I was paying attention to my personal finance I would have just called a plumber to install a new one. I would pay for it with my credit card because I didn’t have any cash savings or emergency fund. Naturally, I took my time paying the card back.
Fast forward to today, when my hot water tank failed I didn’t call the plumber. I went down to Home Depot and purchased one. I learned how to install it myself, it was very easy. I paid cash for the heater and even used a 10% off card that was for Lowe’s but Home Depot honored it. Ebay has these cards. I bought 10 for $10.00. My discount card cost me a dollar and saved me $30. I paid for everything with my emergency fund money. Then went home to install my new heater.
It was a lot of work and hassle but I probably save 50% of the price of a plumber doing. But the best part was I didn’t go into debt for this emergency. As a matter of fact it wasn’t really an emergency but just an inconvenience. There was no anxiety or nervousness. The reason it all went well was I was prepared for it. That’s what an emergency fund can do for you. That’s what a little planning and saving does for your life.
Category: featured, Saving Money
People do not have any money to save toward an emergency fund.
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