Adulting with Richard Sherman: Setting Up An Emergency Fund

Adulting with Richard Sherman: Setting Up An Emergency Fund:Are you ready for an unexpected expense? An Emergency Fund can help. Learn how to build it, how much you’ll need, and why it’s necessary! Over 60% of millennials wouldn’t be able to afford an unexpected $1,000 bill. I know, $1,000 is a lot; but in reality you should have more than that on hand in your emergency fund. (About 3 to 6 months of your fixed expenses is the sweet spot.) You never know what could happen, and being prepared is essential. But don’t let these numbers scare you! It takes time to build, and after watching this episode of Adulting with Richard Sherman, you’ll be on your way in no time. To catch more episodes of Adulting with Richard Sherman on FinStream TV, please click this link: https://www.finstream.tv/videos/adulting-with-richard-sherman/

So what is an emergency fund?

An emergency fund is a savings account set aside specifically to cover unexpected expenses or financial emergencies. It serves as a financial safety net, providing individuals and families with a cushion to handle unforeseen circumstances without having to rely on high-interest debt or deplete other savings accounts. Here are some key aspects of an emergency fund:

1. Purpose: The primary purpose of an emergency fund is to cover unexpected expenses or financial emergencies that may arise, such as medical emergencies, car repairs, home repairs, job loss, or other unforeseen events. Having an emergency fund in place helps individuals and families weather financial setbacks without disrupting their long-term financial goals or resorting to borrowing money at high interest rates.
2. Liquid and Accessible: An emergency fund should be kept in a liquid and easily accessible account, such as a savings account or a money market account. This ensures that funds can be quickly accessed when needed, without incurring penalties or waiting for funds to become available.
3. Size: The size of an emergency fund will vary depending on individual circumstances, such as income, expenses, and financial obligations. Financial experts generally recommend saving enough to cover three to six months’ worth of living expenses. However, the appropriate size of an emergency fund may be higher for individuals with unstable income, high levels of debt, or other factors that increase their financial risk.
4. Regular Contributions: Building an emergency fund requires regular contributions over time. Individuals can establish a savings goal and set aside a portion of their income each month to fund their emergency savings account. Automated transfers from a checking account to a designated emergency fund account can help individuals stay consistent with their savings efforts.
5. Separate from Other Savings: An emergency fund should be kept separate from other savings accounts, such as retirement accounts or long-term investment accounts. This ensures that funds are earmarked specifically for emergencies and are not used for other purposes.
6. Replenishment: If funds are withdrawn from the emergency fund to cover an unexpected expense, it’s important to replenish the fund as soon as possible. This helps maintain the financial safety net and ensures that the emergency fund is available for future emergencies.

Having an emergency fund is a fundamental aspect of personal finance and provides peace of mind knowing that there is a financial buffer in place to handle unexpected expenses. By prioritizing regular contributions to an emergency fund and keeping it separate from other savings accounts, individuals and families can better protect themselves against financial uncertainty and build a solid foundation for their financial well-being.