Understanding the Importance of Emergency Preparedness Plans
- fotaquest
- May 3, 2024
- 3 min read
Updated: Feb 4
Understanding the Importance of Emergency Preparedness Plans
By Lars Guo
Published: May 3, 2024
Opening Message: Hi Folks! I hope you're doing well! Thank you so much for reading my blog posts; I truly appreciate it. Today's blog is all about emergency funds. We’ll cover what an emergency fund is, whether I have one, why it’s important, how much you should save, and a closing message. As with all of my finance-related blogs, it’s important to note that I am not a financial advisor, nor am I pretending to be one. This is based solely on my experience. If you don’t agree with my content, take it with a grain of salt, but please be respectful. Thank you!
What is an Emergency Fund? An emergency fund is a stash of cash saved specifically to cover your living expenses when you don’t have income or face unexpected expenses like medical bills, surgery, or a job layoff. It is not meant for fun shopping sprees, vacations, or unnecessary purchases. This fund is only for true emergencies. Expenses like retail therapy, dining out, or anything that isn’t an urgent need should not be part of this fund.
Do I Have an Emergency Fund? Yes, I absolutely have an emergency fund. Early in my career, when I started at my current job, I didn’t receive a paycheck for several weeks. Luckily, I wasn’t paying rent at the time, but it made me realize how uncertain it can be when your next paycheck is coming. I want to have enough saved to cover living expenses for one to two years, just in case the worst happens and I lose my job. While it’s not ideal, my emergency fund is currently in a CD (certificate of deposit), earning a solid interest rate for a few years. Ideally, it would be in a high-yield savings account, such as Ally Bank or Capital One (though I’m not sponsored by them). I’ve heard about these accounts from YouTubers like Daniel Braun. Keep in mind that interest rates fluctuate. One downside of keeping your emergency fund in a CD is that you’ll face a penalty if you need to withdraw early. Some high-yield savings accounts also have special terms and conditions regarding interest rates.
Why is it Important to Have One? Having an emergency fund gives you peace of mind. When an unexpected situation arises, you won’t have to rely on high-interest debt like credit cards or bank loans to cover the costs. Knowing you can manage the emergency without stressing about how to pay your bills is a huge relief. An emergency fund ensures you're prepared for the unknown, and that’s worth having. Any emergency fund is better than none.
How Much Should You Have in Your Emergency Fund? While everyone’s situation is different, I highly recommend having at least one year’s worth of living expenses saved. If the pandemic taught us anything, it’s that emergencies can strike when we least expect them. Six months is also a good amount, but the more you save, the better. Personally, I hope to save an additional six months on top of my current one-year emergency fund. The more prepared you are, the better.
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Closing Message:I hope you found this blog post about emergency funds helpful and informative. Thank you again for reading my blogs! I look forward to seeing you at the next one. Have a wonderful day!
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