Are you ready for the unexpected? If you find yourself in some car trouble or your home needs surprise work, you’ll want to be prepared.
These expenses probably aren’t in your monthly budget, but that’s how an emergency fund can save the day.
Here’s what you need to know about starting your emergency fund, including why it’s important and how much you should save.
What’s an emergency fund?
It’s money set aside for future (and often unforeseen) expenses. Your emergency fund can help you in case you need to:
- Repair your vehicle.
- Replace or maintain a home appliance.
- Prepare for a negative financial event.
Why is an emergency fund important?
If you already have a savings account, you might be wondering why you need another fund as well. Many people save with specific goals in mind, like a new car or a home renovation.
You can take your time saving up for purchases like that, but emergencies usually mean immediate expenses. Your emergency fund is there for you so you can handle an urgent matter without worrying about how to pay.
How much should you save?
The amount of money to keep in an emergency fund will be different for everyone. Factors like kids and lifestyle play an important role in determining an amount that meets your comfort level.
It helps to understand your monthly expenses. From there, you can set a goal to save an amount to cover expenses for a set number of months. Many homeowners aim to save 1% to 3% of their home value.
What about your insurance?
Car insurance and homeowners insurance are there to help you cover some unexpected expenses. When building your emergency fund, consider your deductibles and what’s covered by your policies.
We understand the importance of looking ahead. If you have any questions about your policy, don’t hesitate to get in touch.