FUNDAMENTAL FINANCE

Is An Emergency Fund Really That Important?

Or just another hyped up personal finance topic?

How to save money to pay for true emergencies. (Image courtesy of pexels.com)

One of the most vital pieces of your personal finance journey is establishing an emergency fund.

We touched on this subject briefly when discussing savings accounts, but there is much more to discuss than simply, “save $1,000.” There are three basic questions to answer when setting up your emergency fund, and we’ll go through each one in detail.

• What is an emergency fund?
• How much do I need to save?
• Where do I save it?

What Exactly Is an Emergency Fund?

The title is pretty self explanatory, but here’s a formal definition. An emergency fund is a separate pot of money that is used exclusively for emergencies, when no other source of cash is available.

Let’s broaden that a bit.

• A separate pot of money

Your emergency fund should be completely separate from your checking, standard savings, cash, and investment accounts. While you could technically used a software like YNAB to keep it in your checking account but digitally “separated”, your brain is tempted to just look at your overall…