What is an Emergency Fund?

Like I mentioned last week and Emergency Fund is different than a traditional savings account. 

Today let's unpack an emergency fund. 

Emergency funds are your greatest weapon when it comes to planning for the unknown. Losing your income can be devastating and can lead to financial strain. If you don't have enough money saved to pay for your rent next month, then we need to start there.

For me, the choice to start and build our emergency fund came from the unknown, that feeling of wondering where would your next anything comes from if you lost your job or the ability to work. Don't forget to join the Free Email Emergency Fund Challenge.

So let's discuss what an Emergency fund is...

An emergency fund is a form of a sinking fund. Sinking funds are where you set aside money every month until you hit your target goal.

Not sure what a sinking fund is? Don't worry, I got you. Read - Tips to Starting a Sinking Fund.

An emergency fund is specifically for instances in which you have a financial emergency. This could be due to a loss of job, all four car tires needing to be replaced, etc.​

Saving money and specifically assigning it to your emergency fund means that you cannot use that money to supplement your lifestyle. An emergency fund gives you the power to regroup and figure your next steps without wondering where will my next meal come from or will I be evicted?
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Emergency funds are not for non-emergency purchases like buying a new purse or shoes.

Saving money alone is not enough! You need to ensure that the money you save is separate from all temptation (aka connected to your checking account).
Still not sure how to determine if you need an emergency fund? Check out this post from last week where I discuss Savings Account vs Safety Net vs Emergency Fund.

Let me know if you've ever been unprepared for the unknown and how did you handle it?