Have you ever needed money immediately, maybe to fix your car, you were laid off from work, or some other emergency, but you didn't have the money to cover it? What did you do? Maybe you had to borrow money from friends or family or you had to take out a loan or a credit card.
Emergencies such as these are very possible. They can cause a lot of stress and worry in your life. The best way to deal with money emergencies is to be prepared. If you build an emergency fund, when you have emergencies such as these, you will have the money to deal with them. You won't have to borrow money which will only put you into debt.
What is an emergency fund?
An emergency fund is an amount of money that you put to the side for emergencies. It can be any amount of money you want, but a good rule of thumb is usually about 3 to 6 months of your living expenses. For example, if you need to spend $2,500 every month for food, rent or mortgage, taxes, gas, insurance, and other bills, you should save a set aside $7,500 to $15,000.
This might sound like a lot of money, but you don't need to save it all right now. It will take you a little while to build it up. How do you build an emergency fund?
You should always be saving money. I don't just mean getting deals. There's a big difference between saving money at the store and saving money in the bank. If you go shopping for clothes, you might spend $100 on clothes that cost $150 before. Sure you saved $50, but you probably weren't planning on spending that anyway. You might still have spent more than you planned, and in the end, you didn't put any of that money in the bank.
You need to make saving money a habit. Save a certain amount of money out of your paycheck every payday. You can do a certain percentage or a certain amount. For example, if you get paid every week and make $800 a week, you can put aside 10% every month or maybe $100 every month. If you make pretty much the same amount of money every month, then it doesn't really make much of a difference, but it's up to you.
There are lots of different ways you save money besides this, too. You can take the equivalent of what you saved on your grocery bill and save it or you can take every $1 and $5 bill and save it. There are lots of different clever ways to save. The important thing is that you do save.
Once you have your emergency fund, you will feel a huge relief. You don't have to worry about living paycheck to paycheck and you don't have to worry about emergency expenses. Make sure that if you have any debt, you pay that off before you start building an emergency fund. Once you have your debt and emergency fund paid off, don't stop saving. Continue saving on a regular basis and invest the money. Put it towards your kid's college funds, your house, retirement, whatever is most important to you.
Samantha is currently attending college for a degree in accounting and likes to write about money management to teach others how to stay financially sane in a world where debt is overwhelming and money management skills are lacking. To learn more about money management and saving money, visit her website Teen Money Central.
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