How big should my emergency fund be?

This article can also be found here.

When people begin to plan their finances, creating an emergency fund is rarely something that is very high on the list of things that they try to save for. They would rather plan for tangible things, rather than saving in case something does happen. However, creating an emergency fund is a necessity when it comes to financial planning, and it is one of the most important things that you can do to help secure your finances.

Having an emergency fund is one of the most important financial moves you can make, but having an adequate one can be tough. The first thing is, YOU NEED SOMETHING. Even if it's a little, everything helps, and the more you have, the less you will have to borrow if you do have an emergency. That is the key... if something happens, you need to have some money to be able to deal with it, rather than putting it on a credit card, acquiring debt, etc.

You might ask, why is an emergency fund so important? Well, what if you lose your job? Have a car accident? Have to go to the doctor unexpectedly? All of these require you to have some money saved up. If you don't, you'll likely have to charge expenses to a credit card, which will be charging high interest, and you'll begin a slide into debt. Having saved up an emergency fund, you will be better able to handle all of these things in stride, which will do wonders for giving you financial stability.

So how much is enough? There's no easy answer and no correct answer that will work for everyone. Most people would recommend at least 3-6 months worth of living expenses, just to be safe. In all likelihood, that's not feasible for a lot of people, but it is what you should aim for. The more you have, the more prepared you will be to handle any emergency that may come up.

The key is to start up your emergency fund, and just put some towards it on a continual basis. If you put something like $50 per week away for emergencies, within a year you'll have $2600, assuming you haven't earned any interest on it (tip: put it in a high-interest savings account, and you can even earn some on it). That's definitely a great start, and can put you well on your way to financial stability.

So really, put whatever you can away for emergencies, but make sure you're doing it... you'll thank yourself if you lose your job, get in a car accident, and incur some other unexpected expense. Having an emergency fund is one of the most important financial decisions that you can make.