Accidents happen. It’s part of life. Get over it and stop reading this.
Wait! I’m just kidding! Please come back! I have so much to tell you!
The thing is, accidents can hurt a lot less if you take the time to prepare for them financially. That’s what your emergency fund is for. (It’s a fairly literal name).
An emergency fund is an “untouchable” account that you build up over time. You only take money out for emergencies. Here’s a quick guide to help…
- Car repair so you can get to school or work
- Medical procedures and treatments so you don’t die
- Home repairs so you have a habitable place to live
- Job loss
- Shoe sale
- Craving for a lobster dinner
- Last-minute trip to Belize with your friends
- Tip on a horse race
Now that that’s squared away, here are the steps to build an emergency fund.
- Determine your absolute bare-minimum monthly expenses that you need to live (rent/mortgage, utilities, car payment, minimum credit card and loan payments, food, prescriptions, etc.)
- Once you determine that total amount, multiply it by 3. It is recommended that you have 3 to 6 months’ worth of expenses saved up for emergencies.
- Make sacrifices and tighten spending in other areas to build up your savings. Skip a few nights out each month. Use coupons for groceries. Avoid making any unnecessary purchases.
- Add all of your extra savings to the emergency fund until you have saved at least 3 months’ worth of living expenses.
ACCC offers this helpful Emergency Fund Calculator to help you get started.