What is an emergency fund?
An emergency fund is a pool of money you can save when you encounter an unexpected financial burden.
It should be specifically set aside for emergencies, such as a car repair, medical problem, or plumbing leak. Your emergency fund can also help you weather through an unexpected loss of income like a job loss or cut in hours.
An emergency fund should not be used unless necessary. It should never be used for discretionary spendings, like going out to dinner or a vacation. Think of those fire extinguishers that say “in case of emergency, break the glass.” That is the feeling you should have when you go to withdraw from your emergency fund.
Building your emergency fund:
This isn't something that happens overnight. It takes some time, and its something you'll be setting aside money for a while.
1) Open your account (find a high-interest low-risk savings account): consider these points as well:
Low-Risk - these funds need to be in a safe place. You don't want them invested in something that puts your account at risk of losing money.
Accessibility - the ability to access your funds quickly in the event of an emergency.
Interest Return - look for accounts that will help you grow over time. Most savings accounts don't offer much, but there are a few out there that can give you almost 2% return.
2) Calculate your emergency fund needs: Parkbo does this for you! :) We recommend six months worth, but you have the flexibility to adjust based on your needs.
3) Automate it: Use the Parkbo recommended 'save' amount and direct that towards your emergency account until you've reached the suggested amount you should have in reserve.
4) Extra savings: When you spend less than your daily spend, move those extra savings towards your emergency fund to ramp up the savings.
Building an adequately funded emergency fund is of the highest priority and necessary for being able to achieve overall financial success.