The Importance of Having an Emergency Fund
How Much Should You Set Aside in an Emergency Fund?
I know this site is usually about credit cards, but personal finance is also an important part of your credit card management and an emergecy fund is an important part of personal finance. Playing Chutes and Ladders should be required for anyone experiencing financial difficulties as a result of overspending. Nearly every financial expert strongly encourages individuals to have an emergency fund set aside. Yet, how many of us actually follow this advice?
What’s so Special about a Children’s Board Game?
When you play Chutes and Ladders, the experience is kind of like life. You’ll sometimes win, maybe even a few times in row, but eventually, you end up losing. Just when you think you’ve almost made it to the top, you land on that single spot that has a long and windy slide right down to the second row without an emergency fund.
Back to Square One
Within a matter of seconds, you’ve ended up right back where you started. In life, this translates to experiencing a major financial setback due to illness, job loss, or other circumstances that are beyond your control. That is where an emergency fund comes into play. Sure you won’t be sitting pretty, but if you have enough money set aside to pay your rent or mortgage and living expenses while you’re out of work or recovering from an illness, you’ll have one less thing to worry about.
How Much is Too Much?
Most financial experts recommend that you set aside at least six months of living expenses in an emergency fund, but ideally you should have up to a year of expenses set aside in an emergency fund. Now, I’m not going to argue you with you, if you want to set aside two, or even three, years in an emergency fund that's great.
If setting up an emergency fund that will last year for a year seems like an impossible feat, start small. Set aside a month’s worth of expenses in your emergency fund, and then build your emergency fund over time.
A Children’s Classic Revisited
By making an emergency fund your top priority, you can rest assured that you will be able to provide for yourself and your family when unfortunate life’s circumstances crop up. This holds true even if you have credit card debt. Once you get that emergency fund started, I promise you won’t wistfully look at Chutes and Ladders the same way again.