Develop an Emergency Fund for Emergencies and Peace of Mind

Lacking cash you can easily call upon when a sizeable but unexpected emergency need for it arises typically costs us more than the cash itself. Not having that available cash often costs us loan fees, investment losses, not to mention the daily stress of worrying about handling an unexpected financial emergency. That's where an emergency fund comes to your rescue.

Properly managing your money can actually reduce expenses that others with similar wealth may be paying. Proper management begins with a budget that accurately projects your normal living expenses. You pay these expenses with your income from Social Security, your pension, and planned investment withdrawals. Your planned investment withdrawals ought to come from your conservative income-based investments of your appropriately balanced portfolio for your situation in life. Such planning minimizes or negates investment losses triggered by inappropriately timed withdrawals.

*Emergency fund attributes:

But financial emergencies are not part of your budget; that's because their unanticipated expenses. Because of this they can produce unnecessary expense and worry for you beyond the immediate cash they require.

Setting up an emergency fund produces a buffer that keeps planned expenses and their investment withdrawals orderly, appropriate, and cheap; it's the oil that prevents wear and tear on expenses and you. It relieves undue stress about the financial problems that emergencies create; reduces risk of slipping into bankruptcy or collection agencies harassment after a reversal of fortune; and reduces unnecessary expense of getting hold of unanticipated but needed cash

But an emergency fund is for emergencies that require ready cash. Examples are a car accident, unpaid hospitalization and unpaid house damage. These are events that you'd have to go in debt to pay for - or take a loss on an untimely withdrawal from investments.

An emergency fund is not for paying living expenses or planned traveling expenses. Those are come from other 'planned for' expense accounts.

*Build your emergency fund:

Start your emergency fund with perhaps $1,000. Then methodically build it up to perhaps 4 months of normal living expenses (not that it'll be used for that) as a gauge for a reasonable amount to hold. If you've got debt, reduce it and put those savings into your emergency fund.

Hold the bulk of your emergency fund in a money market. But leave about 10% in an emergency account at your bank that you can access with an ATM card.

With your emergency fund in place, you can offset some or all the losses beyond the cost of the emergency that lack of cash would produce. But, perhaps most of all, you'll relieve yourself of the stress of worrying about handling an emergency. That's a savings in itself.

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