Don’t Hold Off on Creating an Emergency Fund | Richard Banks & Associates, P.C.

Creating an emergency fund—it’s a topic you probably have heard about often, which should go to show just how important it truly is.

If your finances are in rough shape, it may seem difficult and pointless to establish an emergency fund, but this is not the case. In that scenario, it’s even more important for you to create one.

Why Have an Emergency Fund?

Unfortunately, financial setbacks happen regularly, and the majority of those who experience them are completely unprepared to pay for such setbacks. This leads to the use of a credit card to cover an emergency, which then leads to finance charges and a cycle of revolving debt.

Did you know that in 2017, over a fifth of adults surveyed reported having faced an unexpected medical expense, with a median cost of $1,200?

Unexpected medical bills aren’t the only reason you need an emergency fund. Your car could require a trip to the mechanic, something could go wrong in your home and require repair, or you could face a hardship event like losing your job or seeing your hours cut.

All these hypotheticals could cost a good deal of money, and it is a well-known fact that four in 10 adults couldn’t cover an emergency costing $400 or more without having to either borrow money or sell something to pay for it.

By planning ahead and working at building up a healthy emergency fund, you are setting yourself up for a more positive financial situation.

How Much Should You Save & Where Do You Start?

One of the first things to decide on is how much money to put away in this emergency fund. It is recommended to begin by saving $1,000.

After you have stored up that $1,000, you can then begin to focus on building up enough of an emergency fund to cover three to six months’ worth of expenses.

If money is tight, which it usually is for the majority of Americans, you can start small. Set aside $10 a week or make sure that a portion of your check is deposited directly into your savings account. By having the money direct deposited, it can take on a sense of “out of sight, out of mind” and will be less likely to burn a hole in your pocket.

Most importantly, DO NOT dig into that emergency fund to pay for non-emergency situations or needs. Ask yourself these three things before you utilize those emergency funds:

1. Is it unexpected?
2. Is it necessary?
3. Is it urgent?

If you answer yes to all three of those questions, it’s most likely an emergency situation that justifies pulling money out of the account.

Being prepared for a financial setback may seem like a difficult task, but it is still one that you should be working toward little by little. If a financial emergency has already taken a toll on your financial situation, don’t hesitate to discuss bankruptcy options with our team at Richard Banks & Associates, P.C..