Build a Strong Emergency Fund: Your Financial Safety Net

An emergency fund is one of the most important parts of an individual's financial planning. With an emergency fund, you will be prepared financially for whatever comes along. Here are the basics of a good emergency fund and how to go about creating one.

Emergency Funds

Every person should strive to create an emergency fund for themselves and their families. A good emergency fund would contain enough money to tide you over if something bad were to happen. For example, the emergency fund could pay your bills for a time if you were to lose your job. A good goal to shoot for is saving enough to cover 3 to 4 months worth of expenses. This way, you would have plenty of time to find another job before the money ran out. 

Starting an Emergency Fund

Many times the most difficult part of the process is getting started. Finding a savings account that pays a high yield is a good idea, be sure to research a few accounts before you make any decisions. Then, set it up so that a certain amount of money transfers into the account every month. This way, it will be automatic and you do not have to consciously do anything to make it work. 

How much money should you put into an emergency fund?

The amount of money that you should save for an emergency fund should be a personal decision. As a general rule, most people like to have a least three to six months' worth of expenses in their emergency fund. This is to cover the bills if you were to lose your job or your source of income. In most cases, individuals can find another job within six months. Therefore, you can live off the savings in the meantime. When calculating, you need to look only at expenses instead of accounting for taxes, savings and other things that you normally might pay.