An Emergency Fund can be a Financial Lifesaver
Even if you lived a charmed life, you'll eventually run into some unexpected large expense. Your car's transmission could need to be replaced (an average cost of $1,800 according to Edmunds.com), your refrigerator could give up the ghost (between $1,000 and $3,000), or you could need a root canal (between $750 and $1,000 per tooth). And while the economy is improving, companies are still announcing layoffs. How would you pay your mortgage or rent and other essential bills if you lost your job?
The best approach is to build an emergency fund. The recommended amount of savings varies, with most financial experts suggesting saving 3 to 6 months' salary. Another way to figure out how much you should save is to take a careful look at your budget and put away enough money to cover at least those expenses for up to 6 months.
How to Build Your Emergency Fund
Saving money may seem difficult, especially if your budget is tight, but it is possible. You don't need to put a lot of money into savings at one time, just make consistent deposits and your emergency fund will grow steadily. Here are some strategies to help you get started:
Although interest rates are very low, most experts advise keeping your emergency fund in a savings account because you can get the money immediately when you need it. They advise against putting your emergency savings into stocks or other investments with any risk because there is always a chance you could lose the money you've worked so hard to save.
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.