The Beauty Of Emergency Money

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Earlier this year a great friend of mine read an article that put her into a state of financial anxiety. “Kendall, I’ve heard that you need to have 3 to 6 months of savings in an emergency fund.” The look on her face was a familiar one. She was not the first person to come to me concerned about their lack of savings. Additionally, I have noticed many people start a savings fund with the intention to build it for security but lose sight and momentum.

I want to dedicate some time to help you understand what an emergency savings account is, how it can benefit you, and when you should use it.

What is an emergency saving account?

An emergency savings account is a fund that is set aside from your other accounts. It is to be used in the case of a true emergency. By having the fund separated from your other money, it protects it from being used on spending for non-emergency purchases. Many people want to keep their emergency fund and their spending in the same account. It is best not to keep all your money in the same account, because the lines between the two are blurred. You would be better off designating a separate savings account for emergencies. Your emergency savings account is your protection and should be easy to access. Therefore, your retirement, single stocks, and equity in your home are not considered emergency savings accounts.

When setting up your emergency savings account think of two main things:

1) You want to be able to get your hands on the money quickly. If your emergency savings account requires you to jump through hoops, it will not protect you in an emergency.

2) Is this considered a loan? If you are borrowing money, then it will require a repayment plan increasing your expenses.

To get the best out of building an emergency savings account keep it simple. Open a simple savings account.

How you can benefit from an emergency savings account?

Your emergency savings account is a form of protection from life’s obstacles. It will act as a barrier between you and disasters, which keeps you calmer when unpredictable financial situations arise. My emergency savings account is one of my financial comforts. It is reliable in times of financial uncertainty. Needless to say, I take my emergency savings account seriously.

I have found when you build a strong savings, it gives you freedom.

I will use an example from my own life to portray the power of an emergency savings account. Before I started paying off my debt, I had to leave my job due to a stress induced illness. I was overworked and anxious, all because of my high debt payments. I was steadily trying to overwork to earn more money to accomplish what were my goals at that time. It was a very flawed plan. After several tests, my doctor sat me down and said, “You are too stressed out and it is affecting your health. You have to leave your job.” Clearly, it was an emergency. My health was being compromised. I decided to leave my job and it was one of the best decisions of my life. To learn more about how I took on my debt click here.

Always Save For A Rainy Day

Though I had debt, I always took saving very seriously. Luckily, I had saved enough to leave my job and search for another one without the pressure of worrying about making my minimum payments. I was able to support myself for a few months and look for a new career that would serve me better. I am still in that career today. Savings was always on my mind and still is today. I love to watch my savings account grow, because to me it represents protection and freedom.

I was able to leave my job without another one. I don’t recommend this if you have the time and space to find another job while employed, but in my situation, it was a true emergency. My emergency savings account allowed me to feel independent. My emergency fund saved me.

What is considered an emergency?

One habit you must develop when building an emergency savings account, is to leave it alone. Remember this is money that is intended to protect you in financial hardship. If you are constantly taking money out of your emergency savings account for non-emergency wants, you risk the chance of your cushion dwindling. You may have experienced building a savings before and then taking from it over time, until the amount left could not support you in a month of hardship.

The second habit you have to develop is replenishing your savings as soon as you can. If you need to use your emergency savings, make sure you make it a priority to replace the money. Don’t let your fund continue to deplete. This will reassure that it will be there to protect you the next time around. If you remember these two tips, then you will continue to have a financial safety net.

Emergency Savings Account Fixes Essentials Only

Now, let’s say you have an urge to use the fund, but you can’t tell if it is an emergency. Here are a few questions that might guide your decision.

1) Will taking money out from my emergency fund help me keep my job?

2) Is this purchase for essential needs or wants?

3) Will using this money protect myself or my family’s health?

Here is a list of things that emergency funds should not be used for.

1) New cars- If your car needs repairs to run, then the emergency fund can be used

2) Clothes

3) Eating out at restaurants

4) Vacations

5) Entertainment

6) Furniture

Having an emergency fund can be the safety net you need at times when you least expect. When people have a good emergency fund it increases their sense of security. They no longer have to feel that their jobs are their only financial protection. It stops you from living paycheck to paycheck and puts you in a position of certainty. Build an emergency savings fund and treat it as your own insurance for when life becomes overwhelming.