Have you ever suddenly lost your job? Or needed a surprise root canal? Perhaps your car broke down, or your refrigerator stopped working.
These unexpected moments in life can put you into debt if you’re not prepared. That’s why you need an emergency savings account to protect you.
What’s an emergency savings account? It’s a savings account that is only to be tapped into when a real emergency arises. (And no, those Adele tickets are not an emergency!)
Alexa Von Tobel, CEO of Learnvest, likes to call this a Freedom Fund because yes, you’ll be covered in an emergency like illness or injury, but it will also give you the freedom to pursue a new career or leave a toxic work environment. It will give you peace of mind, knowing that you don’t have to worry about paying your bills right away.
Experts say everyone should have 3-12 months worth of expenses saved in their emergency savings account. If you are self-employed, or have a family to support, you want to be on the higher end of that spectrum – and that amount can change depending on shifting circumstances. For instance, right now I have 6 months of income saved but I’ll want to increase that once I’m fully self-employed.
If you don’t have any savings built up yet, don’t feel discouraged! Everyone has to start somewhere. And as Elizabeth Gilbert said, “it doesn’t get done until you begin doing it.” Even if you can only save $10 a paycheck, that’s better than nothing. It will grow faster than you think. Over time, the more money you earn, or the less debt you have, the more you can save.
Do you already have a fully funded savings account? Have you ever had to rely on your emergency fund? Share with me on Twitter!