Build an emergency fund into your budget, and as the years go by, make sure you increase the amount you put in it. The simple rationale for this is that something will go wrong and you’d better have the funds to pay for it. In addition, something may go right and you’ll need to have the funds to be able to enjoy it.
Let’s first talk about the good. What if you make a new
friend at work, and he invites you to his wedding on the other side of the
country? You’re going to want to go to it. That means you need money for
airfare, hotel, a gift, and other things. This trip was unplanned at the
beginning of the year, so you’d better have an emergency fund that can fund this
expense.
On the bad side, what if your car gets hit and insurance
covers all but $500 of it? You will need to find that $500 or you won’t be able
to get to work. As you will learn in the debt and credit card lesson, you don’t
want to charge this expense on your credit card. It would cost you significantly
more to pay it back using your credit card. Your best bet is to have your
emergency fund take care of it.
The most common unexpected expenses are automobile, medical,
prescription, home maintenance/repair, and veterinary (please don’t buy a pet until you can afford one). I’m sure you can
think of some other unplanned expenses that may affect you.
Early in adulthood, it’s difficult to have a large emergency
fund. Make sure you budget for one and increase it as you get older. Doing so
will save you headaches, stress, — and money.
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