Emergency Fund

Emergency Fund is an account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to use high interest debt, such as credit cards, as a last resort. —Wikipedia

christianpf.com wrote:

  • With the unemployment rate high, job loss can happen to you! Most likely it won’t in the short term (the odds are in your favor), but if it does, you don’t want to cut back on your essential expenses.
  • Medical expenses are one of the most commonly cited reasons for bankruptcy or other financial troubles. If you break a leg, you’re going to want to have health insurance. But health insurance only goes so far! That’s why it’s so crucial to ensure that you have an emergency fund in place to soak up those costs.
  • Anything can happen. There are so many more things that can happen other than medical expenses that can drain your bank account. Don’t get caught off guard!
  • The simple idea that you have thousands of money in the bank will help you relax, have less stress, and grant you the ability to focus on what you really need to: your income.

Most financial planners suggest that an emergency fund contain enough money to cover at least three to six months of living expenses but you can also save 12 months worth of expenses or more because it is totally up to you. Note that financial institutions do not carry accounts labeled as emergency funds; it is up to the individual to set up this type of account.

Most emergency funds are highly liquid, such as checking or savings accounts. This allows quick access to funds, which is vital in emergency situations.

Read also: My Journey To Financial Freedom

How to build an Emergency Fund? Watch this:

Image credits: suzeorman.com, biblemoneymatters.com




3 Replies to “Emergency Fund”

  1. Loss of job.. what about if you voluntarily resign to re-charge and figure out what to do next. Can I use my emergency fund for it?? 🙂

    1. Hi Claudine. If you think it would make sense utilizing your “emergency” fund to cover your expenses after you “resigned”, then of course you can use that. Don’t forget that you’re the one who could best assess your situation and you’re the one who know better what was your primary reason why you saved that money. I hope you have learned something from this article.

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