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  • Emergency Fund: What it Is and Why it Matters

    Published on September 25, 2023

    An emergency fund is money you set aside for large and unexpected expenses. Typically, this is done using a bank account where you can tuck away money for unforeseen medical expenses, job loss, car repairs, and other urgent matters.

    If you don’t have an emergency fund set up, you’re not alone. According to recent data, 57% of adults in the U.S. can’t afford an emergency expense that costs $1,000. It is important to have an emergency fund as it provides a financial buffer that can help you ride out a rainy day.

    It is generally advised that you have enough in your fund to cover six months of your living expenses. Without one, you could wind up in serious debt, making it even harder to get back on your feet.

    How to Create an Emergency Fund

    To avoid having to put everything on your credit cards, it is recommended that you start building an emergency fund as soon as possible. These tips can help you get started on doing so.

    Find Ways to Save

    Are there expenses you can cut out of your budget? Instead of spending $5 on coffee per day, add it to your savings fund. If you buy coffee 20 days a month, that’s $100 in savings you can have in case of emergency.

    Open a Savings Account

    Savings accounts bear interest, and while it may not be much, it’s better than keeping all your earnings in your checking account. You can arrange to have money moved into your savings account automatically. Your employer may even be able to divide your direct deposit paycheck to split it between your checking and savings accounts.

    Use Savings Apps

    Some apps can help you save money when you make purchases. They can round up the purchase amounts on the transactions you make and automatically transfer the extra into your savings account.

    Don’t Spend Your Tax Refund

    At tax time, if you get a refund, use that to build your emergency fund. This is a great way to take charge of your money and have it work for you. While it might be more fun to splurge, if you have an emergency, you’ll be relieved to have enough money to take care of it.

    What to Do If You Have an Emergency But Don’t Have Any Funds

    Unfortunately, if you’re part of the majority of Americans who do not have an emergency fund and an emergency occurs, your options will be limited. A prime example of this is if you get into a car accident.

    After a car accident, you will face a mountain of medical expenses. Depending on the severity of your injuries, you may be out of work for a while. This means you’ll be incurring more debt without earning more money.

    Thankfully, legal funding is an option in a situation like this. It can help you get the money you need in advance until you receive your personal injury settlement. It is a great solution for those without an emergency fund.

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