Building an emergency fund is a crucial part of financial planning. With the help of budgeting apps, it has become easier to save money and build an emergency fund. This article will discuss the characteristics of an emergency fund and general steps to building an emergency fund using budgeting apps.
What is an emergency fund?
An emergency fund is a pool of money that you set aside to cover unexpected expenses or income loss. It acts as a financial safety net and can help one avoid debt or financial hardship in case of an emergency. The following traits describe an emergency fund:
- Liquid: An emergency fund should be readily available and liquid so that you can get to the money fast if necessary. This is why the majority of monetary experts advise putting your emergency fund in a money market or high-yield savings account.
- Adequate: Your unique situation will determine how much money you need in your emergency fund. Nevertheless, the majority of experts advise keeping three to six months’ worth of living expenses in reserve as an emergency fund.
- Separate: Maintaining separation between your emergency fund and other savings or checking accounts is crucial. This will stop you from unintentionally using your emergency funds.
- Regularly replenished: If you do spend your emergency fund, it’s critical to quickly replenish it. To ensure that your…
