Emergencies can happen at any time, often when they are least expected. It could be a sudden medical expense, a car repair, a job loss, or even a natural disaster. These events can cause financial strain and make it difficult to make ends meet. That’s where an emergency fund comes in.
This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.
Emergency funds, also known as emergency savings, refer to money set aside in an account for unforeseen circumstances. Think of it as a financial safety net. Keep reading to learn about what emergency funds are and how they work.
Savings accounts are a type of bank account that typically allow individuals to save money and earn interest on their deposits. While an emergency fund is typically held in a savings account, not all savings accounts are considered emergency funds.
The key difference between a savings account and an emergency fund is the purpose of the money. A savings account is normally used for a financial goal, such as a down payment for a house or a holiday while an emergency fund is specifically set aside for unexpected expenses.
A common approach is to dedicate a portion of income toward emergency savings. Keep in mind that an emergency savings account functions like any other savings account in terms of how it’s funded.
Money can be added to an emergency fund by:
How funds are added to an emergency fund will vary depending on the account. Some accounts may come with associated fees, so it’s important to always read and understand the full terms and conditions.
Consider these tips for help getting started:
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