Why You Need an Emergency Fund
Emergency funds are an absolute necessity for financial security because they give you funds to fall back on if you become ill or disabled and can’t work, or if you or your spouse lose your job, incur large medical bills, or have an unexpected large bill such as a major car or home repair.
Without an emergency fund, you may be forced to incur credit card debt that could take you many years to pay off and end up costing you much more in the long run.
You never want to be in the position where you have to buy daily necessities like food, transportation, and housing on credit. Imagine still making payments on groceries you bought (and ate) three years ago, at 10-18% interest. Pretty depressing.
How Much You Need in Your Emergency Fund
The minimum amount in your emergency fund should be three to six months worth of basic living expenses. Singles who don’t have dependents who rely on them may be able to get by with three months’ worth (although it makes me cringe to say so), but couples or anyone with dependents should definitely shoot for six months worth. The more people you support, the more likely you are to have unexpected or unplanned costs.