Two years after graduating from college, my colleague and friend became extremely ill and spent the next few months in and out of the hospital. She stopped working and ultimately had to move back in with her parents. It took over 8 months for doctors to properly diagnose and treat her illness. Months of unpaid rent, student loans, and a massive hospital bill left her in a mountain of debt and destroyed her credit.
Life is full of curveballs, they are difficult to predict and in hindsight, most people wish they were better prepared to handle them. Building an emergency fund is one step you can take today to protect yourself from unexpected financial hardships in the future.
Most finance specialists believe that an emergency fund should cover three to six months of your expenses. If you have a family or are the sole earner in your household, it is recommended that your emergency fund cover six to nine months, since that is the average time it takes to find a new job. No matter the size of your emergency fund, it is advisable to keep it in a low-risk account such as an interest-earning savings account or money market account.
If you think you do not have the means to start an emergency fund or the discipline to sustain it, you can. It is okay to start small by putting away $5 or $10 per week. If you normally use direct deposit with your employer, consider having a fixed amount, like $25 or $50, deducted from each paycheck directly into your savings account and the remaining sum into your checking account. This will prevent you from spending the money prematurely. When things occur, like unexpected car repairs or medical costs, don’t be afraid to take from the emergency fund just make sure to build it back up once things stabilize.
To learn more about emergency funds follow the link “Building an Emergency Fund” below.