Emergency Fund: What it is, Why it Matters, and How to Build One


Emergency Fund: What it is, why it matters, and how to build one

Has the global COVID-19 pandemic prompted you to rethink your money moves?


Bravo if you put establishing an emergency fund at the top of your list. An emergency fund is one of your most powerful tools to weather life’s crises.


But what is it and how can it impact you? Let’s take a closer look.

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What’s an emergency fund?


Simply put, an emergency fund is your personal financial safety net. It’s highly liquid, such as a cash or money market account kept separately from your regular checking and savings account, and set up to cover large, unexpected expenses.


What kind of expenses? You may be thinking “gas line repair,” “new roof” and “unforeseen medical expenses.” Six months ago, these may have been at the top of the list.


But the ongoing pandemic has shifted our thinking. Now many people want to earmark that emergency fund as their primary source of support for themselves and their families in case of unemployment. Since March, more than 40 million Americans of all income brackets and occupations have lost their jobs because of COVID-19 and the subsequent economic fallout. Although some hiring has resumed, uncertainty prevails.


You want to be prepared.


Depending on your family situation (single, married, a working spouse, minor dependents), aim for emergency savings to cover up to nine months of expenses you may have to pay due to unemployment.


That buffer will allow you to continue paying your monthly rent or mortgage, food and medications, private school tuition, utilities, car loan, insurance, plus property, and real estate ta