What happens when you have an expense that you can’t anticipate? Whether it’s a broken laptop or a flat tire, having an emergency fund can be a financial lifesaver. An emergency fund is an amount of money you set aside (in a bank account to accumulate interest and to ensure it is safe) to cover expenses that you hadn’t planned. How much to set aside in an emergency fund depends on your critical expenses. Broad categories of critical expenses include educational costs, housing, food, health care, utilities, transportation, and any debt you may have. Once you determine the total cost of your critical expenses, experts believe you should have enough money in your emergency fund to cover at least three to six months’ worth of living expenses as a rule of thumb. While it may seem daunting to build up an emergency fund of this size, start by stashing away a smaller amount on a regular basis. Once you are in the habit of setting aside small amounts, you will be able to build and sustain your emergency fund.
