Let’s talk about how much you should save in your emergency fund and go over some ways that the savings positively impact your life.
What’s up, everybody? It’s your boy, Brandon Copeland, aka Professor Cope, and you are now tuned to another episode of Cope’ing With Money.
If you’ve been keeping up with Cope’ing With Money then I’m sure you’ve heard me say we’ve got to make our money work for us. But as important as that is, there’s a crucial step we have to take before we can safely start investing: We need to build an emergency fund.
We’re all taught from a young age the importance of saving our money, but many of us are never told what we’re actually saving for. You might think that a number in your bank account isn’t nearly as exciting as investing in the stock market or taking that vacation that you’ve always wanted. And I’m going to be honest with you: It isn’t. But it is one of the most important financial steps you can take, especially when you’re trying to chase financial freedom.
So today I wanted to go over some ways that an emergency fund can benefit your life right now and talk a little bit about how much you should have saved in your emergency fund.
Prepare for Emergencies
An emergency fund can be used for a variety of situations, the first of which is right there in the name. Having some money stored away protects us in the event of an emergency or unexpected expenses.
For example, let’s say you’re skating at Skateland in Maryland. You’re a seventh-grade kid, little husky, little rough around the edges, but it’s the last song playing before you gotta get to your travel basketball league game. “Game Over” by Lil’ Flip comes on. So you go out and skate one more time around the ring, but you fall this time, and you happen to break the growth plate in your ankle.
Our emergency fund not only helps cover the medical expenses, but also provides for us if we’re unable to work while it heals. Now, seventh-grader, not working, but you can go ahead and imagine how this story applies to your life.
Whether it’s car trouble or a burst pipe, or a sudden change in our living situation, we can never predict everything that life will throw at us. But by keeping an emergency fund, we can be prepared for it.
Stay Out of Debt
Building an emergency fund also helps us stay out of debt.
Let’s take the same ankle injury, for example. If we don’t have the money for our medical bills, then we’d likely have to take out a loan or put it on a credit card. And if we can’t pay that money back, now we’re stuck paying interest on it too.
One of the major hurdles to reaching financial freedom is debt, and a lot of times that debt can be caused by the natural obstacles that life throws at us.
Article by Brandon Copeland in Kiplinger Newsletter