You have probably heard many people say that you should always have money for a rainy day.  This doesn’t necessarily mean money to spend on things that you don’t need, but can often mean more of an emergency fund.  Having a proper emergency fund is one of the most important things that you can do for your financial security.

If at all possible, it is good to have 3 months of living expenses saved because there is really never any way of knowing what could happen next.  The economy can change quickly, which makes knowing how much you will need unpredictable.  No matter how much money you make, if you don’t have some saved away for the unexpected, you’re simply gambling with your financial security.

Some of the unexpected things that can happen are having the transmission go out in your car ($3000 and up), having a water heater rupture and flood a room in your home, getting seriously ill and accruing significant medical bills, etc.  Your emergency fund is money that you save/stash for the primary purpose of being used in an unexpected turn of events.  While your emergency fund won’t prevent the hassle or emotional reaction of an unpleasant turn of financial events, it will allow you to pay the bills, which is some peace of mind.

Your emergency fund should be in an easily accessible account, such as a savings account, so that the money can be withdrawn without penalty very quickly if necessary.  There have been studies conducted that reveal that most Americans wouldn’t be able to come up with $1,000 to handle an emergency.  The lack of an emergency fund is not only a source of stress for many people, but ends up driving people into debt.  When you don’t set aside any money for emergencies, you may have to max out a credit card to pay for something, which sends you into debt if you aren’t already there.

A job loss for even a short amount of time can really be financially devastating to an individual or family if they don’t have money set aside.  People think they can live on their credit card, but you can’t live for 6 months or longer on a credit card because you could be paying off that debt for the next 10 to 15 years.  Because not many people have the amounts that they need to set aside currently, it is best to begin putting money away every month on a regular basis, so that you can eventually arrive at your target emergency fund amount. 

Something is better than nothing, so even if you can only set aside a little bit each month, at least you’re making progress.  It may also be beneficial to examine your spending habits to see if there is areas where you could spend less to increase the monthly contribution to your emergency fund.  Start out putting aside what you can and try to spend less if possible, and over time you will start to gradually increase your emergency fund.  Another great benefit of at least putting some money aside is that you will start to gain some peace of mind that if a small to medium size financial emergency were to strike, you might be able to handle it.