Saturday, September 3, 2011

Creating an Emergency Fund

An article recently quoted an FCC survey citing that 64% of Americans would be unable to get $1000 for an emergency.  To me, it isn't that alarming, but hopefully college students understand the importance of having an emergency fund available for easy access.  It is quite risky living paycheck to paycheck without access to cash, which is probably more common as a college student.  However, we also probably have access to parents in times of emergency but it is especially important to have our own fund.  Once we graduate and live in the "real world," we will have to deal with these issues independently.

How large should your emergency fund be?  Financial experts say that a good emergency fund should be about 3 months worth of income.  The U.S. Department of Labor calculates the average annual household expenditure to be around $50,000 (as of 2007).  This puts an emergency fund at around $12,500. This may seem like a lot, but with the state of the economy, unemployment is a real possibility for most people.  Sudden illness or disability, a car repair, or some natural disaster occurring could become quite costly, even more so if you aren't prepared and are desperate to find ways to get cash.

Not everyone may have to worry as much about all of these things, but eventually you will.  It also takes time to save up an emergency fund so start thinking about it as soon as you can.  If you don't already, try to start saving a little each month.  A couple hundred dollars each month will get you to build that fund within a few years.  Even if you can't put a couple hundred, put what you can.  Some day, when you find out you really need the money, you'll be glad you did.

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