What is an emergency fund? And why would you need one? Let’s start with Murphy’s Law, which states: …“anything that can go wrong will go wrong.” So potentially you could…
…fall ill…
…lose your job…
……experience some flooding…
……and, well, the possibilities are endless.
An emergency fund is a savings account meant to help you through unpredictable events. Which leads to the question: How much money should you have in case of an emergency? One month’s worth of take-home income is a good start. Three months would be even better. And six months would be great! Because if you lost your job unexpectedly, you could cover six months of expenses, such as…
…housing…
…utility bills…
…loan payments…
…food…
…gas…
…and all of the little expenses in life.
Your emergency fund can also cover big, unexpected expenses that your salary or insurance might not cover. So where do you keep that money? Since emergencies are, by their nature, unpredictable, you’ll want to keep it safe and easily accessible. A savings account is a great option because if you need to withdraw early, you will not be charged a fee and your balance is safe. It will never change based on market conditions and is insured by the FDIC for up to $250K.
But, you probably want to keep it in a dedicated savings account. It is best to keep it separate so you aren’t tempted to spend your emergency savings. If you do need to dip into the fund for an emergency, be sure to replenish it quickly…
…because you never know when Murphy’s Law might find you.
Learn more about emergency savings accounts at Discover Bank, Member FDIC.
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