Do You Have An Emergency Fund?

Personal Finance

Do You Have An Emergency Fund?

12th June 2007

A question that I often find myself asking people who tell me they have an unexpected bill to pay and they want to finance the bill by using their credit card. What constitutes an emergency? Since this is a personal issue an emergency will differ from person to person. What I may deem an emergency someone else may not think it is. However, life happens and as sure as the seasons change, your financial situation will change too. Bills whether planned, expected or unexpected will always come. So how do you handle these bills that take you by surprise?

Personal Finance An emergency is defined as " A serious situation or occurrence that happens unexpectedly and demands immediate action" by answers.com. In my personal experiences, emergencies happened once every four to six months. This may vary from person to person. I had medical insurance however, there was a certain limit on my day visits to hospital and there was a $78 dollar bill outstanding at the hospital were I was attended to. This was an unexpected bill and when the hospital called me I needed to pay immediately because if I didn't I was going to be handed over to a collection agency. What an emergency is not for example, is a concert of your favorite artist is taking place and you really want to go but don't have cash to pay for a ticket so you dig into your emergency fund.

An emergency fund is a savings account in which you deposit money usually every month for unexpected occurrences. Finance Glossary defines an emergency fund as "Cash set aside in a dedicated interest account to cover unanticipated emergencies such as property repairs, medical expenses and car repairs."

If you have an unexpected expense come up and you pay for it with cash then congratulations! You are doing way better than most Americans. As I mentioned earlier the answer I usually hear is that people use a credit card to pay for an unexpected debt. What's wrong with that? Well, you are going to pay interest. With my medical bill of $78 if I had used a credit card I would have ended up paying 17.5% on that $78 which would increase my expenses and would mean I paid much more than the $78. Paying with a credit card solves the problem in the short term but in the long term it creates an extra bill.

Start a savings account today or a call deposit account and pay a fixed amount even as little as $20 every month. You will gain interest on the money in the account and you will build a steady cash flow to be used for a rainy day. If you have not yet started, consider starting very soon.

"There are people who have money and people who are rich. " - Coco Chanel

Comments (9):

Kenneth Says: I used to have an emergency fund but the money was used for something that was not an emergency. I plan to rebuild and this time I will not squander it and have nothing to show for it at the end of the day | 06.12.2007 |

Joy Says: I plan to start one within the next few weeks | 06.12.2007 |

Pierce Says: Gees, I'm relieved to have one and I started it three months ago | 06.12.2007 |

Deborah Says: I have never had an emergency fund before as soon after college I had to pay for my student loan and I only finished last month after two years of repayments. I am going to start one now | 06.12.2007 |

Dennis Says: I cannot imagine my life without a little somethiing put away for a rainy day | 06.12.2007 |

Jack Says: I am no fool when it comes to money however I have not had an emergency fund since I got into debt but now I'm aiming to start one again in a few weeks from now | 06.12.2007 |

Jewel Says: I started a fund two weeks ago and I'm hoping to build it for the next 5 years | 06.12.2007 |

Annette Says: Good luck Jack. I started mine six months ago and so far I have not had an emergency so it's still steadily growing | 06.12.2007 |

Beatrice Says: I started mine two days ago! Kevin is right to say what constitutes an emergency differs from person to person but come on some things are common sense! | 06.12.2007 |

MoneyBusiness

Money & Finance

Categories

Blogs I Read

Sponsored Link

Personal Finance

Do You Have An Emergency Fund?

Comments (9):

Add Comments Here: