Planning for a Bright, Financial Future

Have you ever encountered a time when everything in life seems to go wrong? First, your car breaks down and needs repairs, and then your water heater stops heating water. Unexpected repair bills like this can be a nightmare for you and your budget, so you need an emergency fund. If you don't have one, now is the time to consider starting one, and here are three essential things to know about emergency funds.

What It Is

An emergency fund is a bank account where you store money that you use only for true crises. Whenever anything out of the ordinary goes wrong and costs money, you pay for it with this account. The purpose of having one is to help you prepare for these types of events because they happen. No matter how well you plan for things, you can end up with problems that cost a lot to fix. You can protect your budget if you plan for these things by saving money that you use only for real emergencies.

How Much You Need in It

The amount you should have in your fund depends on your budget. A good rule is to save up at least three months of expenses. To determine this amount, add up your monthly expenses and multiply the amount by three. When you get the answer, this tells you how much you should have in the account.

Tips for Starting and Building One

A lot of people do not have emergency funds, and many do not start them because they feel they cannot save up this much money. The good news is that you don't need to save all of it at once. You can start with just a little bit of money and build on it.

To get started, it would be helpful to visit a bank to open up a savings account. You should always use a separate account for this purpose. You should open it with as much money as you can, but if you only have $50, that is plenty to get it going. After that, put small deposits in the account each time you get paid. You will eventually have enough in the account and will no longer need to add more.

Having a separate banking account for your emergency fund is a smart idea, and you can open one in person, over the phone, or online at a bank of your choice.