The importance of building an emergency fund

According to Bankrate.com, 29 percent of Americans – roughly 55 million – do not have an emergency fund. That is an alarming statistic for financial advisors, or aspiring ones like Andrew Curran Wesleyan, because of the underrated importance of saving money for a rainy day.

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An emergency fund is a pool of liquid money that has been set aside to serve as an individual or family’s buffer that would help keep them afloat during times of financial needs. Examples of circumstances that may bring about the need for this type of funds are loss of job or livelihood or large, unforeseen expenses.

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Some people see an emergency fund as an insurance policy – only instead of paying premiums to an insurance provider, the money is kept in a safe place or deposited in bank account. As mentioned, the fund should be liquid so that it can be accessed as easily and as quickly as possible.

For Andrew Curran Wesleyan and others who wish to see families manage their finances better, building an emergency fund is one of the first steps that should be taken. Not only does it give them peace of mind, it helps prevent them from falling deep into debt during financial distress.

As a rule of thumb, an emergency fund should be equivalent to three to six months’ worth of household expenses. This provides another reason for individuals and families to regularly track their expenditures.

Andrew Curran Wesleyan currently studies at University of Connecticut, taking up a degree in finance to help prepare him in becoming a successful financial advisor in the future. Subscribe to this blog to see more articles about personal financial management.