Why You Need an Unexpected Fund

Many Americans today don't have an emergency fund or unexpected fund. If you don’t have a savings account you will have to use a credit card or get a payday loan to pay any unexpected expenses.

Your emergency fund is your safety net, in case you get sick or lose your job you can use your emergency savings to hold you for a few months until you can find a new job or to help get over a financial crisis. Your emergency account should be separate from your checking or savings accounts and should only be used for emergencies such as an unexpected expense, unemployment, reduction in pay, sickness, major car or home repairs, medical bills, etc.

An emergency fund should be enough savings to pay your bills for at least 9 to 12 months. Money for an emergency fund should be readily accessible and stored in a checking or savings account, preferably a high interest savings account such as Emigrant Direct or ING or a money market account where you can make money while saving money.

To determine how much money is needed to pay 9 to 12 months worth of your bills do an inventory and write down all your bills and expenses and the monthly amount spent for each. Calculate the total. Use this amount and multiple by 9 or 12 to determine the total amount you need to save in your emergency fund.

You can start off by contributing small amounts to your emergency fund until you are able to contribute more. Start off with a contribution of at least $20 a month to your emergency fund. Once you are able to contribute more to the fund do so.

Once you have reached your emergency fund goal start developing some long-term savings goals such as purchasing a home, paying for your children’s college education, starting a business or planning for retirement. A great site to learn about retirement planning is www.morningstar.com and click on the Investing Classroom link morningstar.com/Cover/Classroom.html.

There are many organizations that provide emergency services for people such as the American Red Cross Emergency Assistance, Salvation Army Emergency Assistance Program and the United Way. The utility companies provide funds for people in need. These funds can be used to pay basic necessities and any other bills.