Building an Emergency Fund – What It Is & How Much to Have

Building an Emergency Fund – What It Is & How Much to Have

Intro

It’s likely that your parents have told you to save money for a bad day. That’s kind of what an emergency fund is for. That’s a stash of cash you keep handy in case something unexpected comes up. Let’s talk more about what an emergency fund is, why it’s important, how to build one, how much you should have in it, and where you should keep it.

What is an Emergency Fund?

An emergency savings account is like a hidden stash of sweets. That one you keep secret until a big event or when you really want something sweet? So, you don’t buy candy. Instead, you keep your money in case something comes up out of the blue.

Say you’re riding your bike and all of a sudden one of the tires blows out. That wasn’t what you meant for it to happen, right? Your dog gets sick out of the blue and needs to see a vet. Or maybe someone in your family gets sick and can’t work for a while. These things can be scary if you don’t have the money to deal with them.

That’s the reason you save money! Having money saved up is like having a superhero save you when these strange costs come up. If you keep some cash hidden, it will be easy to pay for these unexpected costs. You won’t need to borrow cash or spend all your savings on that cool new toy or game. A fund for emergencies is like a safety net for your money. When things go wrong, it will be there for you.

Why is an Emergency Fund Important?

Say you’re in the middle of a really exciting game and all of a sudden, your controller stops working. Oh no! That means the game is over, right? Unless you have an extra controller, of course. That’s how an emergency fund works. Take it with you when you play the game of life. Your emergency fund keeps you in the game when things go wrong, like your bike tire popping or your dog needing to go to the vet. You won’t have to worry about getting other people to lend you money or using your special savings to buy that cool toy or video game you’ve been craving. It’s like having your own personal safety blanket that keeps you safe from life’s surprises. So, having an emergency fund is very important, just like having a spare controller.

How Much Should I Have in an Emergency Fund?

Everyone should have a different emergency fund, just like their secret candy stash. Don’t worry—determining your goal is simple. Consider how much money you’d need for snacks, clothes, and movies for three to six months. Try to save that much! It sounds like a lot of money! Remember you don’t have to save everything. You put one marble in a jar at a time until it’s full. Start small. Save a little of your allowance each week or month. Your emergency fund will fill quickly like your marble jar! Like a spare tire or game controller, this money is there when you need it.

How to Build an Emergency Fund?

Just like building a LEGO tower, creating an emergency fund is a step-by-step process. You don’t have to find all the pieces (or dollars) at once. It’s more like a race with a tortoise; slow and steady wins the race. Let’s see how you can build your fund:

1. **Set a Goal:** Remember when we talked about how much you should have in your emergency fund? That’s your goal. Aim for that amount, just like when you aim to finish a level in a video game. But don’t stress if it seems like a lot. Remember, every big goal starts with small steps.

2. **Make a Plan:** How much can you save from your allowance each week or month? Even if it’s just a little bit, like a few quarters or a dollar, it’s a start. Every little bit counts, like every LEGO piece matters when you’re building that super cool spaceship.

3. **Save Regularly:** Just like how you practice for a sport or video game, the key is to be consistent. Try to put aside a part of your allowance into your emergency fund every week or month. Make it a habit, like brushing your teeth or doing your homework.

4. **Look for Extra Savings:** Did Grandma give you money for your birthday? Did you earn a few extra dollars by helping your neighbor with their yard work? These are great opportunities to boost your emergency fund. It’s like finding a hidden treasure chest in a game, giving you an extra boost!

5. **Avoid Temptations:** Remember, your emergency fund is like your secret candy stash, saved for those times when you really need it. So even if that new video game or toy looks really cool, try not to dip into your emergency fund. You’ll be glad you saved it when an actual emergency pops up.

So, just like building a LEGO tower, or finishing a level in a video game, building an emergency fund takes time and patience. But with a goal, a plan, and some consistency, you’ll get there. Just remember, every dollar counts!

Where to Keep Your Emergency Fund?

Think about where you hide your secret candy stash. You wouldn’t want to put it somewhere too obvious where others can find it, right? But you also wouldn’t want to put it somewhere too hard to reach when you really want some candy. It’s the same with your emergency fund.

At first, you could use a piggy bank. It’s like your personal little bank, right at home. You can see your money growing, just like you can see your candy stash growing. But as your money starts to pile up, you might need a bigger, safer place. It’s like needing a bigger candy jar when your stash gets too big for the little one.

That’s where a savings account at a bank comes in. A bank is like a super safe candy store where you can keep your emergency fund. The money is safe and secure, just like your candy would be in a candy store’s storeroom. Plus, your money can grow even more with something called “interest.” It’s like if the candy store gave you an extra piece of candy every now and then just for keeping your stash there. Pretty cool, huh?

Just remember, the place you choose to keep your emergency fund should be safe and easy to reach in case of an emergency. But not too easy that you’re tempted to spend it on things that aren’t real emergencies. It’s like making sure your candy stash is within reach when you really need a sweet treat, but not so easy to reach that you end up eating all your candy in one day. So, think wisely about where to keep your emergency fund, just like you would with your secret candy stash!