You’ve probably heard the hype around building up an emergency fund, but never really understood why. What exactly constitutes as an emergency? It’s not when you go window shopping, and the shoes are calling your name. It’s not during Superbowl Sunday and you realize your TV isn’t big enough for the party. It’s certainly not your fund you should access lightly and it should never be your credit card.
So what are some true “emergencies” that you can use that cash for? In this 2 part series, we will identify times where you should have an emergency fund and about how much you should have saved. Here are the first 5 instances where you should have some money saved up.
- Job loss: Being fired or laid off sucks, especially when you didn’t see it coming. With the way the job market is, finding a replacement job is going to take months, and that’s time away from a steady income. For this situation, you should have a nice size emergency fund, preferably enough to cover 6 months to a year worth of expenses. This includes money for rent, food, transportation, and any other bills you pay monthly.
- Car troubles: Whether you have a car that’s new or old, they require maintenance. Sometimes you need more than an oil change and tire rotation. Transmission and brakes could fail, or you could be in a car accident that requires a hefty amount of money, even after your deductible. This fund should be at least $1,000.
- Baby: Babies are definitely bundles of joy, but with them come heavy expenses. This isn’t a one time change either; your entire financial life will be turned upside down. The amount of money you should save up will vary, depending on what you need to buy.
- Death: The death of a loved one is hard not only emotionally, but also financially, especially if they didn’t have life insurance. Who knew a funeral would be so expensive! You should have a fund of around $7,000 to cover the costs of a funeral. It’s a lot of money to say goodbye.
- Home renovation: Some people like to remodel, at least to enhance the look and feel of their home. Some home renovations, however, are emergencies and unexpected. After a natural disaster, your home could be damaged and in need of immediate repair. Having at least $5,000 could cover you for some damages, but it’s hard to say what you should prepare for. To help with this, take preventive measures, especially depending on your location and how susceptible your home is to a particular seasonal disaster.
Next week, we will continue to identify 5 more situations that may arise where an emergency fund would be ideal. Have any of these emergencies came up in your life? How much money did you have saved, if any?
Briana Myricks is a 20 something freelance writer and blogger. Striving for financial independence as a newlywed, she blogs about young married life at 20 and Engaged.