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Emergency Funds
by John M. Roberts 

An emergency fund is money set aside to cover unexpected costs due to unforeseen events. 

Emergencies can happen at any time and usually pop up when you least expect them. They often occur when you are not prepared to handle them. Most emergencies happen without warning, quickly take over your life and leave you in a state of shock.

The problem is that most people don't worry about emergencies until they happen and then they find themselves in a financial bind.

Emergencies can ruin you financially by causing you to drain your bank accounts. They can cause you to max out your credit cards. They can force you to take out unwanted loans on your home or other property. They can cause you to have to borrow from friends or family. They can force you to raise cash by pawning or selling your valuables.

Emergencies can be devastating, but if you prepare for them before they happen, the blows may not hurt as much, especially if you have an emergency fund set aside for such unexpected events.

Most people think of emergencies as a death in the family, a bad car accident, or an unexpected illness. But emergencies can encompass almost anything. Your car may break down, the water line in your home may burst due to cold weather, or a relative may die who doesn't have life insurance and you may be asked to help pay the funeral expenses. These are things that happen to people all the time.

How do you set up an emergency fund?

  • First, you should calculate your monthly expenses and determine how much it would cost you to live per month under normal circumstances.
  • If possible, you should put at least 10% of your paycheck into your emergency fund each month.
  • A good rule of thumb is to set aside enough money to last six to seven months. This may take a while but if you plan, and work your plan, you can reach your goal.
  • Your emergency funds should be put into a totally separate account. If you put your emergency funds into your regular checking or savings account, it becomes easier to spend and you probably will spend it.
  • Your emergency fund should take high priority on your "to do" list and you should treat it as such.

The money you set aside should provide you with a cushion to help weather most emergency situations. This includes most unexpected events from short term unemployment to making repairs on your home or automobile.


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