How big is my emergency fund?
Let’s talk about how much you should save in your emergency fund and review some of the ways savings positively impact your life.
What’s up everyone? It’s your son, Brandon Copeland, aka Professor Cope, and you’re now set for another episode of dealing with money.
If you keep up deal with money Then I’m sure you heard me say we should make our money work for us. But as important as this is, there is a critical step we need to take before we can safely start investing: we need to create an emergency fund.
We’ve all been taught from a young age the importance of saving our money, but many of us are never told what to actually save for. You might think that a number in your bank account isn’t nearly as exciting as investing in the stock market or taking that vacation you’ve always wanted. And I’ll be honest with you: it’s not. but that he is One of the most important financial steps you can take, especially when you are trying to chase financial freedom.
So today I wanted to touch on some of the ways an emergency fund can benefit your life right now and talk a little bit about how much you should have saved in your emergency fund.
Prepare for emergency
An emergency fund can be used in a variety of situations, the first of which is in the name. Storing some money away protects us in case of emergency or unexpected expenses.
For example, let’s say you’re skiing in Skateland, Maryland. You’re a seventh grade kid, little husky, a little rough around the edges, but it’s the last song you play before you go to your travel basketball game. The movie Game Over comes from Lil’ Flip. So you go out and skate again around the rink, but this time you fall, and you break the growth plate in your ankle.
Our emergency fund not only helps cover medical expenses but also provides us with support if we are unable to work while recovering. Now, in seventh grade, it’s not working, but you can go ahead and imagine how this story applies to your life.
Whether it’s a car problem or a burst pipe, or a sudden change in our living situation, we can never really anticipate everything life will throw at us. But by keeping an emergency fund, we can be prepared for that.
Stay away from debt
Creating an emergency fund also helps us stay out of debt.
Let’s take the same ankle injury, for example. If we don’t have the money for our medical bills, we’ll probably have to take out a loan or put it on a credit card. And if we can’t pay that money back, we’re now stuck paying interest on it too.
One of the main obstacles to achieving financial freedom is debt, and many times this debt can be caused by the natural obstacles that life throws at us.
Our emergency fund not only covers the cost of the emergency itself, but it allows us to stay on the ground until it is fixed.
Allow career changes
An emergency fund also allows for career changes.
Earlier this year on dealing with moneyWe talked about the great resignation and discussed some ways to leave your job responsibly. One such way was to have an emergency fund on hand. Stockpiling savings gives you more freedom when it comes to your career path.
Sometimes, in order to protect our mental health, we need to let go of an unfavorable situation. In these scenarios, it pays to rely a little on our savings, especially if we can’t arrange another opportunity before leaving our current one. You may also find yourself applying for a job that pays less than your current job, but it will help you put your foot in the door of your dream industry.
Again, it pays to have some financial leeway in the form of an emergency fund as we pursue our goals.
Take advantage of compound interest
The best part about creating an emergency fund is that we can reap the rewards and benefits even if we never use it.
Depositing money into a savings account means we can begin to build up interest and take full advantage of compound interest over time. Although most regular savings accounts collect small amounts of interest, it’s still a way to build on the money we’re storing away anyway. For long-term savings, you can also look into high-yield savings accounts to grow your earning potential.
And if you’re looking to start investing, this could be a great way to get a basic understanding of growing your money through passive income.
Follow Financial Freedom
Finally, along the same lines, building an emergency fund allows us to begin taking steps toward true financial freedom.
It’s like I said: we have to make our money work for us. Creating this financial safety net is one of the first steps towards investing with confidence.
While a portion of our income remains safe in this emergency fund, we can start working with whatever is left and, as they say, invest only what you can afford to lose. They also allow us to make investments with little risk or less liquid if we choose to do so. Also, remember: If stocks and real estate investing aren’t your thing, go ahead and build up those savings.
The better prepared you are to face life’s obstacles, the better you will feel and the more confident you will be in your ability to attack those obstacles.
How much should I save?
So now you’re probably thinking, “Okay, Cobb, you convinced me. But how much should actually be in my emergency fund?”
A health emergency fund usually contains three to six months’ salary or living expenses, but as always, you should assess your situation and save as much as you reasonably can.
Try to set aside a fixed percentage of your income each month. This will help you stay on track and ultimately increase those savings.
Creating your own emergency fund not only helps you level the playing field financially, but also puts you in peace of mind when it comes to your financial situation. It’s good to know that you’re protected in the event of an accident, and that with a cushion in store, you can really start paying off extra debt and making your employee money through investing.
To learn more about how to set up your own emergency fund or any other financial topics, visit Kiplinger.com. As always, I wish you the best of luck with your emergency fund. Stay safe, stay blessed. Until next time. Dealing with money. I will see you soon. Hello.