Your finances are like a tool box each tool represents a different and important feature that makes sure you can get the job done and build the financial security you have worked so hard for. While hammers and drills may represent the more exciting side of finances such as your income and investing, no tool box is complete without a first aid kit and no financial plan is complete without an emergency fund.
Emergency funds are made up of a bit of your savings that you set aside incase of you guessed it, emergencies! The most important emergency that the fund typically covers for is job loss. While other big emergencies do occur, at least there is steady income always coming in to cover for it, but if your only source of income is suddenly gone, you will need money immediately just to perform normal tasks like paying your bills or buying groceries. This is why saving up an emergency fund as soon as possible is always recommended to anyone trying to become more financially stable.
So the question is, how much should I save in my emergency fund? 3 months income? 6 months? A year?? Usual guidelines do exist, but the answer to how much you should keep in your emergency fund is very unique to your own circumstances, we recommend the bigger you can make your fund, the safer you are from emergencies. Just always remember it is an emergency fund and not a savings account, so don't overload it with money that could best be spent elsewhere such as...
DEBT! Just as every emergency fund is unique, so is everyone's debt situation. Some have none, others are drowning in it, and it is always important to understand the relationship between your debt and your emergency fund. Your debt may be alarming, but it is not your emergency funds job to pay it off, that should be done with the some of your other savings or a steady stream of your income. Pouring out your emergency quickly onto debt can sometimes have the opposite effect and just make things worse! Check out this quick video to hear how one couple used their emergency fund in the wrong way in an effort to pay off debt.
Call us today at 417-860-5678 to discuss your emergency fund, debt, and your financial future!