Every Household Needs an Emergency Fund

Emergency Fund

Many families today are barely making it from pay check to paycheck, let alone having enough money to put some aside for an emergency fund. An emergency fund is when you set aside so much money out of each pay check to save in case there is a financial emergency within the household.

These emergencies may vary from someone getting sick out of state and you need to fly there; your child has an accident and hurts their teeth and it is not covered by your insurance, a storm hits and the roof starts leaking, or the car breaks down.

These are all things that may happen at some time or another and it’s a good idea to set aside enough money to cover them. For example, last week our hot water heater blew and it cost us $800 to get a new one.

Now of course, we did not have this budgeted, so we had to go our emergency fund. Some financial advisors say you should be planning for things like a new water heater. For example, most water heaters only last 12 years so when that 12 years comes to pass you should have saved the $800.

The emergency fund is so you can be ready for the unexpected. You should not count on a credit card or loan for these emergencies.

The interest that you will pay on such a loan or charge will put you further in debt. This is a bad choice that will put you into a cycle of debt and one that should be avoided at all cost.

Many people want to know how much they should have in an emergency fund. Some say to have enough to cover 3 to 12 months of living expenses and others say that it depends on how much you make, how many children you have and how much debt you are in.

Because it is not a perfect world having 3 months of living expenses would be a good goal to set. This will be difficult if you are currently paying off student loans, car loans, a mortgage and credit cards.

How does one do this then? If you currently don’t have one, start small. Try to save $1,000 and put it a savings account with a high yield. Listed below are some steps you can take to build up your emergency fund.

Decide on an amount

Decide how many months you are going to save for. Will it be three, six or twelve months? If you are uncertain how much you will be able to save you can always start out with the three months and then if you reach this then you can increase it to six.


If three months seems to be too much start, with a simple $1,000 and as stated above put it in a high yielding savings account. If the amount you are choosing is based on how much you need to live on, let’s say for three months’ living expenses, then check your monthly budget and see how much you will need.

Decide on how much money you need per month

Look at your monthly budget and decide how much money you need to live on for each month. If you do not have a monthly budget, this would be a good time to sit down and come up with one.

Once you have determined this, multiply the amount by the number of months you chose to save for. For example, if you choose to save for three months and your monthly expenses are $3,000 then you will need to save $9.000.

Decide where to hold the money

You need to put your money somewhere safe and accessible. This means that there are at least three good places to put it; a savings account, a short term Certificate of Deposit Account or a Money Market Account.

Do your research and find out which one will yield you the best amount for what you place it in and open an account.

Determine how much you can afford to save

Now that you have determined how much you want to save you need to look at your budget again and honestly decided how much you can afford to put into your emergency fund each month.

This will be difficult but if you can only afford $10, start with this. Any amount will help and will start you on your way. The important thing is to start.

Set up automatic deposit

So there is no temptation not to put the money in the account, set up automatic deposit and have it taken out of your monthly paycheck. Before you know it your emergency fund will be growing and approaching the target goal.

Find ways to save quicker

There are plenty of ways to make a little extra money so that you can save for your emergency fund a little quicker.

Look these up and you would be surprised how many of these ideas will be feasible. Once you have a good size emergency fund you will be able to sleep a little easier.

Editorial Staffs at Healthtian, A team of Writers.