Emergency Fund 101

Having an emergency fund is one of the most important things you can do with your money. A safety net between you and life—a buffer between you and unforeseen crises and curveballs.

Simply put? Money set aside for life’s unexpected events.

Because you never know what’s going to happen. A broken furnace, a leaky roof, a job loss, or worse, a global pandemic. There’s always a reason to have money set aside so you don’t bust your budget or go deep into debt.

So, how do you know if something is a true emergency and you should dip into your fund?

  1. Make sure the expense is really unexpected. Christmas happens every year, your car payment happens every month, and groceries are needed every week. These things need to be a part of your budget—not something you dip into your emergency fund for.
  2. Make sure the expense is absolutely necessary. People don’t always know the difference between a want and a need. Replacing your broken transportation is a need—upgrading to a fancy new car is not. Use your emergency fund for something reliable and affordable.
  3. Make sure the expense is urgent. If there’s a sale on furniture when yours is just fine or a brand-new smart phone that hit the market you’d love—those don’t qualify. But a new air conditioner when yours breaks down in the heat of the summer? That’s probably urgent.

An emergency fund is all about long-term security—not instant gratification. Don’t be impulsive with it, but don’t be afraid to use it when you really need it. Check yourself with the three statements above, and you’ll be just fine.

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