Your car breaks down. You suddenly have medical expenses that are not covered by OHIP. One of you loses your job. How will you take care of these situations and still have the money to pay your bills? These are the kinds of things we hope never happen, but in reality we know that there is always the possibility you may encounter unexpected expenses. This is why it’s such a good idea to build up an emergency fund. But how do you come up with the cash to set aside? How Much Should I Save? A good starter emergency fund should have around $1,000. This is enough to cover most emergency expenses, but it isn’t so much that you’ll be tempted to spend it. Other experts recommend having six months’ worth of income set aside in case of unemployment, natural disaster, or major home repairs. Start with a small goal and build it up from there. What About My Debts? You might be interested in paying off your debts and feel that your money would be better spent going toward credit card bills. But if you run into an emergency and have to fall back on those credit cards, then you’re only perpetuating your debt cycle. It’s better to have some cash on hand to cover the unexpected expenses. Once you have your emergency fund built up, then you can start lowering your debts again. What’s an Emergency? It’s important to only use your fund for true emergencies. If you use it for impulse purchases or borrow from it for monthly bills, then it won’t be there when you truly need it. Only use your emergency fund for things that you can’t normally afford and that will have an impact on your family. This includes major appliance failure, health insurance deductibles, home emergencies such as flooding, unexpected travel expenses, or car repairs. Where Will I Get the Money? It might sound impossible to build up a large amount in your savings, but remember that you don’t have to do it all at once. Take a look over your budget for expenses that can be cut back or eliminated, and put that money toward your emergency fund instead. Another great way to get started is to schedule automatic payments out of each paycheck to go directly into your savings account. That way, you won’t miss it as much and you won’t have the chance to spend it. It’s always a good idea to prepare for the future. Having an emergency fund means the peace of mind of knowing that you can get yourself through when something happens. It’s good to be able to take care of these emergencies while still being able to pay your other bills and put food on the table. Having the money set aside also means that you won’t be racking up more debt, which will keep you more financially sound in the long run.
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