What Is an Emergency Fund and Why Is It Important?

An emergency fund is simply money you put aside for things you didn’t expect.

Your car breaks down. The refrigerator quits. You have an unexpected medical bill. Your hours at work are cut. These things happen, and unfortunately, they usually cost money.

Without emergency savings, you may have to reach for a credit card or borrow money. That can turn a $700 problem into a much more expensive problem once interest is added.

You don’t need thousands of dollars before an emergency fund becomes useful. Start with what you can afford. Your first goal might be $500. Then try for $1,000. Eventually, you may want enough savings to cover several months of necessary expenses.

Don’t get discouraged if you can save only $10 or $20 at a time. That’s still progress. The important thing is to make saving a regular habit and leave the money alone unless you truly need it.

Keep your emergency money somewhere safe and easy to reach, such as a separate savings account.

Life is going to surprise you occasionally. An emergency fund won’t prevent the problem, but it can prevent an unexpected expense from becoming a financial disaster.