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Before your finances can soar, you need a solid foundation that can withstand waves of change. An emergency fund will keep you grounded when life’s unexpected twists and turns occur.
What is an emergency fund?
An emergency fund is an account used to set aside funds needed in the event of a personal financial crisis, such as the loss of a job, a debilitating illness, or a major unexpected expense. The reason to have an emergency fund is simple: You don’t know what’s going to happen. When something unexpected does happen, you want to have the money already saved to take care of the crisis.
Let’s dive in deeper
Most financial advice recommends that an emergency fund cover three to six months of living expenses. However, if you are getting out of debt a starter emergency fund is fine. Stash away $1,000. The emergency funds should be easily accessible and be kept in a checking or money market savings account.
Emergency fund and investing
Financial advisers view an investment strategy as a pyramid. A strong foundation or financial base is necessary to support the volatility that may occur over the foundation. Investments can be unpredictable and it’s critical to have a strong base to support varying levels of risk. Before venturing into intermediate and long-term investment strategies, an emergency fund is recommended as the first step toward creating stability and minimizing risk.
Does Slim Fit Wallet have an emergency fund?
I am currently working on it. If you have read my debt free story, you know that back in the fall I became 100% debt free. I am currently building my emergency fund. I currently have about $8,500 saved for emergencies and I’m aiming to have about $10,000 to $13,000 saved.
Right now I save about $1,500-$2,500 per month to contribute towards my emergency fund. When I was getting out of debt, I contributed about $2,700 monthly towards my debt. I’m still using the same budgeting strategies I talked about in other posts. Now that I am debt free, I have decreased my intensity a little bit, but I am still focused on smashing my e-fund goal. Once I have my fully funded emergency fund. I plan to start contributing 15% towards retirement and saving for a home.
By Simone, creator of Slim Fit Wallet
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