Setting up an emergency fund can set you up for success in the future. An emergency fund is a separate account that you set up in case of, well, an emergency. Typically, you want to be able to cover at least 6 months of expenses in case anything happens in your life. Essentially, you need an emergency fund because it protects you in case anything goes wrong in life, which it eventually does.
Why it's beneficial
Life happens and things don't always go as planned. You may get a flat tire or get laid off and struggle to find work. An emergency fund gives you a life raft when you need to stay afloat. It helps you plan for the unexpected. Having a buffer that covers at least 6 months of expenses should cover almost anything that comes up. The money in this account shouldn't be touched unless absolutely necessary. It may be tempting to use an account with a lot of money for a luxury expense, but it's important to save for emergencies.
It also helps lower your stress. 85% of Americans get stressed about money concerns. Having some extra money laying around in case something comes up can help alleviate it. However, only 18% of Americans say they can live off of their savings for 6 months. Having this backup plan will lead you to a financially stable life.
How to create an emergency fund
I know what you're thinking. How are you supposed to build up enough money that covers 6 months of expenses? You're struggling to make it by as it is. Just remember, it takes time to build up an emergency fund and any progress you make towards it is beneficial.
The first step to create an emergency fund is to create a budget. Tracking your money and seeing where it's going can help you cut back on unnecessary spending and make room for saving. When you make a budget, categorize all your purchases and put them into buckets with set monthly limits. Remember to include an emergency fund budget and set aside that money each month for your emergency fund.
If it seems like an unattainable goal, start by breaking up the goals into smaller goals. Saving 6-months of expenses can look daunting, but start by just putting in a small amount and saving enough to cover 1-month of expenses, then 3-months and so on. Breaking it up into smaller goals can make it feel a lot more attainable.
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