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Preparing for the unexpected with an emergency fund

Alysha Klein
By Alysha Klein - December 14, 2019

PREPARE FOR THE UNEXPECTED WITH AN EMERGENCY FUND

Having an emergency fund means having one less thing to worry about when the unexpected happens. If you find yourself in a situation like a medical emergency, an out-of-the-blue home repair or losing a job, you don’t want to be worrying about how you’re going to manage expenses or about going into debt to cover costs. An emergency fund will let you focus on getting your life back to normal.

 WHAT IS AN EMERGENCY FUND USED FOR?

Unknown Unknowns

Unknown unknown expenses are the expenses that are truly unpredictable. You don’t know when they will happen, what they will be or how much you’ll need. Unknown unknowns are the motivation for creating an emergency fund.

EXAMPLES

  • Sudden unemployment
  • Health emergencies
  • Accidents
  • Bereavement travel

Known Unknowns

Known unknowns are expenses that are somewhat predictable. You don’t know exactly when they will happen, but you know that it’s only a matter of time. Known unknowns should be budgeted for separately, outside of your emergency fund.

EXAMPLES

  • Major car repairs
  • Pet care
  • Home repair
  • Replacing a major appliance

 MAKE THE MOST OF YOUR FUNDS

An interest-bearing savings account is the perfect place for your emergency fund. Ideally, you’ll want to have the ability to instantly transfer funds online between your emergency fund

savings account and your primary checking account so that you’ll have immediate access to your money if necessary. To allow your emergency fund to grow over time, look for a savings account with a decent interest rate, no monthly fee and no minimum balance.

Monthly Expense | Emergency Fund Size 

$500 | $3,000
$1,000 | $6,000
$1,500 | $ 9,000
$2,000 | $12,000
$2,500 | $15,000
$3,000 | $18,000
$3,500 | $ 21,000
$4,000 | $24,000
$4,500 | $27,000


HOW MUCH MONEY SHOULD BE IN YOUR EMERGENCY FUND?

Most financial experts suggest that you have at least six months’ worth of expenses in your emergency fund. Track all of your expenses for a month or two to figure out how much money you will need to get by, and then use the chart below to help you zero in on the ideal size for your emergency fund.


 For more tips and resources on how to manage your debts and build your savings, make sure to download TFCU's Downsizing Your Debt Guide today

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The content reflects the view of the author of the article and does not necessarily reflect the views of Tropical Financial Credit Union or its employees.
We do not guarantee the accuracy or completeness of the information presented in the article.