• Home
No Result
View All Result
Money Monarch
  • Make Money
  • Money Management
  • Banking
  • Investing
  • Lifestyle
  • Real Estate
Money Monarch
  • Make Money
    • All
    • Make Money Apps
    • Make Money Online
    • Side Hustles
    • Work From Home
    68 Ways To Make Money Quickly In Multiple Sectors During 2020

    68 Ways To Make Money Quickly In Multiple Sectors During 2020

    23 Ideas For Kids And Teenagers To Make Money

    23 Ideas For Kids And Teenagers To Make Money

    I need money now

    23 Ways To Make Quick Cash When You Need Money Now

    make money driving for uber

    How To Make Extra Money Driving For Uber

    online jobs for teens

    13 Best Online Jobs For Teens To Make Real Money

    8 Places To Get Paid To Test Websites From Your Home Couch

    8 Places To Get Paid To Test Websites From Your Home Couch

    stay at home mother

    9 Best Stay At Home Mom Jobs To See Your Kids

    hobbies that make money

    16 Hobbies That Make You Money To Start Today

    create passive income with no money

    How to Create Passive Income With Zero Money

  • Banking
    • All
    • Certificates of Deposits
    • Checking Accounts
    • Savings Accounts
    Meet Credit Karma Savings – A New High Yield Savings Account With Even More Perks

    Meet Credit Karma Savings – A New High Yield Savings Account With Even More Perks

    woman writing about a money order

    How To Fill Out A Money Order Step by Step

    checkbook for checking account

    What Is A Checking Account?

    piggy bank savings account

    What Is A Savings Account And When Should You Use One?

    cd ladder money

    What Is A CD Ladder – Should You Get One?

    switch bank meeting

    How To Switch Banks Without Missing Any Payments

    what is direct deposit

    Direct Deposit – What Is It?

    Radius bank high yield account

    Radius Bank High Yield Savings Account Review: What You Should Know

    Checking Accounts Versus Savings Accounts: Similarities And Differences

    Checking Accounts Versus Savings Accounts: Similarities And Differences

  • Investing
    What Is A Bear Market?

    What Is A Bear Market?

    Stash App Review – What You Must Know Before Investing

    Stash App Review – What You Must Know Before Investing

    stock gift

    How to Give Kids A Share Of Stock (Christmas Gifts Or Other Holidays)

    Titan invest banner

    Titan Invest Review – Algorithm Investing Like A Hedge Fund

    thinking about betterment

    Betterment Review: Safe Investing With Robo Advisors?

    best short term investments

    8 Best Short Term Investments To Grow Your Money

    happy acorns review

    Acorns Review – Investing Spare Change With An App

    fundrise review apartment buildings

    Fundrise Review: Real Estate Crowdfunding Made Simple

    M1 Finance Review – The Greatest Way To Invest With “Pies”

    M1 Finance Review – The Greatest Way To Invest With “Pies”

  • Money Management
    68 Ways To Make Money Quickly In Multiple Sectors During 2020

    68 Ways To Make Money Quickly In Multiple Sectors During 2020

    Earny Review: The App That Monitors Price Matching And Price Drops

    Earny Review: The App That Monitors Price Matching And Price Drops

    What Is A Bear Market?

    What Is A Bear Market?

    12 Best Coupon Websites To Save The Most Money

    12 Best Coupon Websites To Save The Most Money

    Groupon Review – Online Discounts Without Clipping Coupons

    Groupon Review – Online Discounts Without Clipping Coupons

    filling up discounted gas

    16 Best Ways To Get Free Gas Cards and Discounted Gas

    how to get out of debt guide

    How to Get Out of Debt (Step By Step Guide 2020)

    Charlie Review – Text Message Budgeting Assistant

    Charlie Review – Text Message Budgeting Assistant

    on phone getting a personal loan

    How To Get A Personal Loan (Where To Look To Find One)

  • Real Estate
    buildium review

    Buildium Review – Is It Worth The Money?

    best property management software

    The Best Property Management Software (Ultimate Guide)

    13 Steps To Buy A House For The First Time

    13 Steps To Buy A House For The First Time

    3 Ways To Make 50K A Year Without Working (Using Passive Income)

    3 Ways To Make 50K A Year Without Working (Using Passive Income)

    how renters can save a house down payment

    7 Ways For Renters To Save For A Down Payment

    7 Ways For Renters To Save A Down Payment For A House

    7 Ways For Renters To Save A Down Payment For A House

No Result
View All Result
Money Monarch
No Result
View All Result
Home Money Management

What Is An Emergency Fund? Here Are The Details

Money Monarch by Money Monarch
January 1, 2020
in Money Management
0
This article may contain references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.
0
SHARES
121
VIEWS
Share on FacebookShare on Twitter

Emergency Funds: Everything You Need to Know

Unpredictability is a fact of life. We can plan all we want, but sometimes, it seems the universe wants to throw a wrench into our plans.

In the personal financial realm, the emergency fund is the tool of the trade for dealing with unpredictability.

But even something seemingly as simple as an emergency fund has plenty of contradicting information surrounding it.

What it is, what to use it for, how much you should save…

Everyone’s got their opinions on these and other emergency fund matters. With so much fragmented and conflicting info coming at you at once, you won’t know where to start.

In light of this, we’ve put everything you need to know about emergency funds into a guide for you. No longer do you have to scour the internet for scraps of information regarding emergency funds; read the full guide below!

What is an Emergency Fund?

An emergency fund is a chunk of money set aside (typically in a savings account) in case of large, unexpected expenses (read: emergencies). It acts as a safety net in case of financial crisis.

Typical emergency fund events include

  • Car accidents
  • Large, sudden medical bills
  • Job loss

There are many more, but we’ll cover those later.

Why Should You Build an Emergency Fund?

Setting aside money into an account that you hopefully won’t ever have to use isn’t fun; you’d rather spend that money or invest it somewhere else, right?

In reality, failing to build an emergency fund can have disastrous consequences not just for your money, but for the other parts of your life.

Protect Your Assets

When emergency strikes, you’ll have to pay for it somehow. If you don’t have an emergency fund, you might have to sell several assets to cover the emergency. This could include possessions, investments, or any other valuables you may have.

Avoid Debt

With no emergency fund nor any assets, you’ll have only one other option (aside from asking family for a bailout): debt.

Given that emergencies are costly, you could end up with thousands of dollars in debt, instantly wiping away years of dedicated frugality and financial discipline.

Keep Other Parts of Your Life Running Smoothly

In a financial crunch, you have to cut off all expenses but the barebones. However, if you have enough money in your emergency fund to cover the emergency, you won’t have to drastically alter your life to stay afloat.

For example, you total your car by hitting another car, but fortunately, both of you get out with just minor scrapes.

Without an emergency fund, you’d have to scramble for money in any way possible, seriously disrupting your life.

But with the fund, you could cover the costs without putting your life on hold, as long as you work on replenishing the fund.

That being said, you should still look for ways to cut back on expenses and save more money after using your emergency fund.

Peace of Mind

Lastly, there’re few better feelings than having money in the bank. Something about being able to live for several months without a single dollar of income really eases the body and mind.

How Large Should Your Emergency Fund Be?

Recommendations vary, in general, your emergency fund should be able to cover about 3-6 months of your living expenses.

If you have no dependents, you’re likely safe with 3 months of living expenses for yourself. However, if you have a spouse and children, aim for the 6 months of expenses.

Yes, this measurement is a relative measurement, but more dependents means a statistically higher chance of an emergency.

Thus, you’ll want extra financial cushion to compensate.

When in doubt, err on the side of caution. Put a little more in than you think you need if unsure.

Living Expenses

In terms of emergencies, living expenses are everything you absolutely need to survive or are required to pay. That includes food, housing, health insurance, utilities, and similar expenses.

No, things like gym memberships and Netflix subscriptions don’t count. You don’t have to cancel these right away during emergencies if your emergency fund is flush with cash (although we recommend doing so because you can purchase them again later), but don’t count them among your living expenses.

What If I Can’t Build a Sufficient Emergency Fund?

When you’re living paycheck-to-paycheck or you’re drowning in debt, saving any money is tough, let alone saving that money in an account you’ll rarely use.

In this case, some is better than none. Try to eek out at least 1 month of expenses as a buffer. Once you improve your financial situation a bit, build it up to the 3-6 month amount.

When to Use Your Emergency Fund: Emergencies vs. Non-Emergencies

Obviously, you should only use your emergency fund in emergencies. But what constitutes an emergency? And what should you NOT spend your emergency fund on?

Plus, some expenses toe the line between emergency and non-emergency. How do you determine if they’re a valid emergency expense?

Let’s start with a few things you should NOT use your emergency fund for.

  • One-off or infrequent expenses – Whether it’s additional income taxes, property taxes, annual subscription fees, car registration renewal, or something else. Prepare for these ahead of time.
  • Occasional expenses you can predict – Major car maintenance, house upkeep, holiday shopping, and other large expenses you know are coming. Save for those separately.
  • Leisure activities – Obvious enough. Never touch your emergency fund when it comes to travel (unless you’re stranded and need it to get home or it’s for a family emergency), dining out, a new TV purchase, etc.

Alright, now time for some valid uses of your emergency fund.

  • Car accident – To pay your deductible, as well as anything else you might owe in the complex insurance claims process.
  • Job loss – Your emergency fund can keep you afloat or supplement unemployment benefits if you’re fired or laid off. However, if you have a spouse, rely on their income and only use your emergency fund if you’re still coming up short. If you both lose your jobs, then your emergency fund is your last line of defense.
  • Large, unexpected medical bills – Maybe your insurance company refuses to pay part or all of a medical bill, or perhaps you get a bill that’s simply too expensive. Your emergency fund will come in handy.
  • Certain travel – The only valid times to use your emergency fund during travel is if you’re stranded somewhere and out of cash, or if you have to travel for a family emergency.
  • Natural disaster – If a storm damages your house, your emergency fund can tide you over while your home is fixed up.

Where Should I Put My Emergency Fund?

The best place to store your emergency fund is a high-yield online savings account, as it can earn plenty of interest. A second good option would be a money market account.

This interest not only matches inflation often (which has hovered around 1.6% – 1.8% in 2019), but it sometimes beats it. Those interest earnings can slightly speed up your efforts to hit your goal amount. What you do with that interest after you reach your goal is up to you, but we’ll share some ideas later.

For now, here are some excellent places to put your emergency fund so it works for you while it waits to be used.

CIT Bank

CIT bank (not to be confused with Citibank) has a fee-free, high-yield savings account with a 1.55% APY. It’s very easy to open when compared to other banks; within minutes, you could have your emergency fund account ready and waiting for your emergency fund.

All you need is a $100 opening deposit to get started.

Discover

Discover’s got a 1.85% APY on it’s high-yield savings account, but where it really shines is its customer service. They also have a great mobile app on the App Store and Google Play store, both versions containing tons of raving reviews.

Discover has comparatively little fees, too. They don’t charge monthly maintenance fees, stop payment fees, NSF fees, or excessive withdrawal fees of any sort. Not a huge worry for your emergency fund in the first place, but it never hurts to know your money isn’t at risk.

Go for Discover if you’re willing to take an interest rate hit in exchange for simplicity and customer service.

How to Build Your Emergency Fund

Now, you’re armed with the knowledge on why you need an emergency fund, when and how to use it, and where to store it.

But how exactly can you build an emergency fund as efficiently as possible? Many people struggle to do so either out of financial strain or because it’s psychologically difficult to move hard-earned cash to a savings account that might never be touched.

Here are some tips for building your emergency fund no matter your situation.

Budget

Budgeting is important to determining your emergency fund amount. Using your budget, you can see exactly what your living expenses are for one month. Multiple that out by however many months (3-6) you need, and that’s your emergency fund savings goal.

The budget will also help you with tracking and cutting expenses…

Cut Expenses

Take a look at your budget and cut some expenses. You’ll have more room here than someone cutting expenses out of necessity because your expense cuts will only be temporary.

For example, you can easily get rid of streaming services for a few months to build your emergency fund. As a bonus, said streaming service might even offer you a free trial to reacquire you as a customer.

In addition, you may discover you can live without certain expenses once you cut them. That’ll free up money for goals beyond your emergency fund.

Start a Side Hustle

No need to launch a full-blown business. Freelance on the side, drive for Uber or Lyft, deliver for Postmates or Doordash, deliver groceries for Shipt or Instacart, get a 2nd job, etc. Direct your earnings to your emergency fund.

Use a Separate Account

This should be obvious, but too many people mingle their emergency cash with their normal savings or worse, their checking. Doing this makes tracking your fund hard; plus, your mind will find ways to rationalize little purchases here and there.

If it’s in your checking account, it won’t even have the opportunity to earn interest.

Put Savings on Autopilot

Set up weekly, semi-monthly, or monthly automatic transfers to your emergency fund. By doing this, you won’t have to think about moving your money over, and you’ll eliminate the temptation of spending money intended for your emergency fund.

Even better, add your emergency fund bank account to your direct deposit. Have a small portion of each paycheck go directly to that account until it’s full.

Always Replenish

The moment you remedy the emergency situation that warranted emergency fund use, you should work on replenishing it. Set up your automatic transfer again. In addition, if you have a savings account for another savings goal, you could simply move some cash over to instantly restore the fund.

It may put your other goals on hold for a bit, but it’s a small price to pay for a safety net.

What About Interest?

The interest you earn on your emergency fund can be used a couple ways. If you’re confident you won’t need to rely on your fund anytime soon, you can use the interest earnings to further progress towards savings goals, invest, or spend it on yourself.

Alternatively, you can let it all sit in your emergency fund to make replenishing the fund easier when you use it.

We recommend both: put away enough to cover your expenses, leave some interest in to provide you some financial cushion, THEN take interest in excess of that amount and use it how you want to.

Previous Post

Nav.it Review – Financial Planning App For Women

Next Post

Titan Invest Review – Algorithm Investing Like A Hedge Fund

Money Monarch

Money Monarch

Money Monarch is a team that is in love with personal finance. We are on a mission to help you make the crucial decisions that will outline your financial future.

Next Post
Titan invest banner

Titan Invest Review - Algorithm Investing Like A Hedge Fund

money mistakes in your 20s

Money Mistakes to Avoid in Your 20's

apps like ibotta

13 Apps Like Ibotta For Cash Back And Reward Shopping

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Money Monarch

  • 8 Followers

Popular Post

  • donating plasma doctor visit

    How Much is My Plasma Worth? Ultimate Guide to Selling Plasma for Money

    0 shares
    Share 0 Tweet 0
  • 13 Ways Nurses Can Make Extra Money From Home

    0 shares
    Share 0 Tweet 0
  • 3 Ways To Get A Free CarFax Report When Buying A Car

    2 shares
    Share 0 Tweet 0
  • The Ultimate List of Blog Income Reports (100 Bloggers to Follow)

    11 shares
    Share 0 Tweet 0
  • How To Get Free Stocks – 8 Ways To Pocket Free Shares

    0 shares
    Share 0 Tweet 0

Follow Our Page

Follow Us

  • Looking for freedom from your job? Want to work from anywhere in the world? Learn how you can earn a full-time income by getting paid to write - even start your own blog! #blogger #blogging #paidtowrite #sidehustle #entrepreneur #entrepreneurlife #makemoneyonline #quityourjob
  • Want to make your money work for you? We
  • Are you a single parent of working hard to support your whole family? We
  • Trying to pay off never ending student loans or high interest credit cards? Let us help! This article explains how to track expenses and earn extra income to help you achieve financial freedom! #studentloans #creditcarddebt #financialfreedom #finance #sidehustle
  • Your health is important! Get rewarded for eating right and working out - win up to $10,000!  #weightloss #fitness #healthylifestyle
Facebook Twitter Youtube Pinterest Instagram

Money Monarch is here to help you save and make more money at home while at the same time helping you get your finances right

Pages

  • Privacy Policy
  • Terms of Use
  • Contact Us
  • About Us

Recent Articles

3 Ways To Get A Free CarFax Report When Buying A Car

3 Ways To Get A Free CarFax Report When Buying A Car

June 17, 2020
Meet Credit Karma Savings – A New High Yield Savings Account With Even More Perks

Meet Credit Karma Savings – A New High Yield Savings Account With Even More Perks

June 17, 2020

© 2022 MoneyMonarch.com

No Result
View All Result
  • Make Money
  • Banking
  • Investing
  • Money Management
  • Real Estate

© 2022 MoneyMonarch.com