You Need an Emergency Fund

Corey —  September 4, 2009

       If you have an unexpected expense of $1,000 today, where will you get the money? If your answer doesn’t involve credit cards, payday lenders, or any other form of borrowing money, you can skip the rest of this post. However, if the only way you could pay such an expense would be to borrow from someone (including family), you need to learn about an emergency fund.

What Is an Emergency Fund?

       An emergency fund is an easily accessible stash of money that you use only for emergencies. It’s not used to pay for your vacation. It’s not used to buy a new car. It’s not used to buy pizza on Friday night. It’s money that you use only when you have a true emergency.

What Counts As an Emergency?

       Before establishing an emergency fund, you need to decide what will qualify as an emergency and what will not. This will help you determine exactly how much you should save up, and it will ensure that you don’t spend your emergency fund unwisely. Anything that does not qualify as an emergency (in your definition) but comes up irregularly should have it’s own savings fund. One example of an irregular, but expected, expenses is your auto insurance. Here are a few examples of emergencies:

  • Unemployment
  • Unexpected medical bills
  • Car repairs
  • An appliance breaks (stove, refrigerator, etc.)
  • Storm damage to your home that’s less than your deductible
  • Mistakes – forgotten bills, taxes that you didn’t account for, etc
  •        You can adjust this list for your situation, but this is a good place to start. Obviously, if you have an old car or old appliances, you’ll want to set aside money in a special savings fund to replace those things if necessary.

    What If You Can’t Afford to Save Up for an Emergency Fund?

           Can you really afford not to have an emergency fund? If things are so tight for you already that you can’t begin saving $10, $20, or $50 a month for emergencies, then what are you going to do when your car needs a repair that costs $400? You’ll only put yourself in a worse position by not having an emergency fund.

           I’m not saying you need to save up $5,000 in the next two months. It will take time to get your emergency fund as big as it needs to be. You’ll want to get the first $1,000 saved up as quickly as you can to protect from any imminent emergencies, but you can save up the rest over time.

    Do I Need an Emergency Fund If I’m Paying Off Debts?

           Yes! You probably need an emergency fund more than anyone. You’ve recognized you need to get out of debt, and you’re working hard to accomplish that goal. But an unexpected emergency could set you back quite a ways because you’ll have to borrow to cover the costs. By having an emergency fund, you can protect all the hard work you’ve put into paying off your debts so far.

           Again, you don’t need a full six months of your expenses as an emergency fund if you’re trying to pay off your debts right now. Save up that first $1,000 or $2,000 as fast as you can, then focus on paying off your debt as fast as you can. If you have an emergency, replenish your emergency fund and then get back to tackling those debts. Once you’ve conquered your debts, continue saving in your emergency fund until you have met your goal.

    Stay Tuned!

           We’ll discuss many more aspects of emergency funds in later posts like how much you should have saved up, where you should keep it, how to build it up, and when you should use it. Stay tuned by signing up for free updates to Provident Planning!



Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

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