Emergency funds

Here is a list of common incidents that we may face in our daily lives. Some of these are unavoidable and may occur unexpectedly:

1. You discover your tire has a nail in it and cannot be patched. Replacement is needed, costing around $300 to $400. Often, you'll need two tires, not just one.
2. Your car's check-engine light turns on due to mechanical issues. Repairs might cost between $2,000 and $3,000, and your vehicle may need two days at the maintenance center.
3. One or two dental crowns fall out, requiring new dental bridges. Your dentist also recommends a deep cleaning before installing the bridges. The total cost could exceed $4,000.
4. Your water heater is leaking and malfunctioning. Simultaneously, your air conditioning unit stops working. Should you call 911? Of course not!

When facing situations like these, how do you typically react? Even if you haven't encountered these issues yet, do you feel anxious or worried about them? Or do you feel calm, knowing exactly what to do—simply calling a professional and paying for repairs? The key action here is "pay." Being able to pay immediately makes all the difference. Unfortunately, many people may hesitate or delay repairs due to insufficient funds in their bank accounts.

This is exactly why emergency funds exist. Emergency funds are specifically set aside for unexpected life incidents, ensuring you can address urgent matters promptly. The only way to manage these situations effectively is to have sufficient emergency savings.

So, how much money should you keep in your emergency fund? Typically, financial experts recommend saving enough to cover 3 to 6 months of living expenses. However, I personally suggest keeping at least 6 months to one year of monthly expenses in your emergency fund. Think of your cash flow as air or blood; without it, you'll suffocate financially. Avoid relying on borrowing money from others. Instead, focus on building sufficient savings for yourself and your family.

Here are easy steps to help you build your emergency fund:

1. Calculate how much you need for your emergency fund.
2. Open a dedicated savings account.
3. Set up automatic transfers from your checking or salary account into this savings account.
4. Check your savings quarterly. Even though the amount will grow predictably due to automatic deposits, take a moment to review your progress. Enjoy this time with a cup of coffee and donuts!