Why an Emergency Fund is So Important to Financial Security
A post from our Partners at the UF/IFAS Extension Office for Hernando County:
Scott E. Taylor
Family and Consumer Science Agent
What will happen to your family if you:
Lose your job?
Have an emergency?
Most of us are very good at planning for our future, but we often don’t think about the “what if’s?” We prepare for the future we think of, but then there is the future that happens.
We all need to make sure we save for the future we want, as well as preparing for those unexpected things that are going to happen. It is not a matter of if, it is matter of when! While we may not know what is going to happen, we can be rest assured that it is going to require money to fix it.
This is where an emergency fund becomes so important. An emergency fund is exactly what it sounds like. A source of money to cover unexpected (think emergency) expenses or situations that are not normal expenses we prepare for in our financial plan. Many of us who grew up in the South have always heard the saying to prepare for a rainy day. Think of your emergency fund as that rainy-day fund. By having an emergency fund, you are prepared for those surprise expenses, and your monthly budget is not knocked for a loop.
One of the best ways to build an emergency fund is a process called “Pay Yourself First.” And it is really, quite simple. For most of us, when we get paid, we pay our bills, and we promise to save some of what is left over, unfortunately, that money we were going to save never makes it to the savings account. Since our brain has seen that money, it now wants to spend it. Much like the feeling when I get a cup of coffee in the morning and see a box of donuts next to the coffee pot. I would have been perfectly happy with the coffee, but now that I have seen the donuts, I want one. Pay Yourself First helps by making savings a planned effort, not just an afterthought. By treating savings as another bill you have to pay, you don’t see that money, and you are not tempted to spend it. And an emergency fund is born.
The emergency fund is the foundation of a family’s savings plan because it is truly the survival portion. Experts recommend having between 3 – 6 months of necessary expenses in the emergency fund to cover unexpected expenses, so it will take a while to build that emergency fund.
However, by establishing a planned savings program, families can create and build their emergency fund to be better prepared for their financial future.