by Emily Hechler 
Life throws us curveballs more often than we would like. Often, those situations result in unexpected payments. Car repairs, medical bills, and plumbing issues are just a few examples. Many people don’t have enough money saved for emergencies like these. Many rely on their credit card to pay for these bills. What do you do if you don’t have enough room on your credit card? What if you have enough room but won’t make enough money to make more than the minimum payments? These questions can be resolved with an emergency fund. This FAQ will answer your questions about an emergency fund.
What is an emergency fund? An emergency fund is money that you have set aside to use in emergency situations. It’s a safety net that can keep you from financially struggling when unexpected expenses arises.
Why do I need an emergency fund? It’s important to have money set aside for emergency situations to remove the stress of paying for the expenses. By having this fund, you can avoid relying on your credit card to pay for these situations. In addition, if your credit card is close to full before the emergency, this can help you avoid opening another credit card or a personal loan.
How much money do I need to save? To start, a good goal is to save $1,000. This can cover some small situations and ease the dent of a situation with a larger cost. After you reach the goal of $1,000, try to save enough to cover around 6 months of living expenses. This should include insurance, minimum debt payments, rent, groceries, utilities, etc.
How do I build an emergency fund? This process can look different for everyone depending on your current income and savings. If you already have ample money in your Savings account, you can use some of this money to reach your initial $1,000 goal. If you don’t have enough money already to cover this amount, include a portion of your monthly budget to build your emergency fund over the next few months. After you reach this $1,000 goal, continue to include your emergency fund in your budget to create a fully funded account.
Where should I store my money? We recommend having a dedicated Savings account for this money, so you aren’t tempted to use the funds for a different situation. This account should be easily accessible and open at your credit union. Alltru’s Primary (or in this case, Secondary) Savings account and High Yield Online Savings account are two great options.
When should I use my emergency fund? You should only use the money in this account for emergency situations. You likely define an emergency different than someone else. This may include car accidents, emergency home repairs, emergency room trips, and a plethora of other situations. If you unexpectedly lose your income, you can rely on these savings to pay your bills as you find new employment.
A key to remember is that if you use money from your emergency fund, you should refill the account after the situation is resolved. That way, it will be there for the next time you need it. Hopefully, you won’t need to rely on the money in this account for years. But once you have the funds, you’ll have peace of mind knowing you have some financial security during uncomfortable situations.
When you’re ready to open your emergency fund, visit Alltru.
