| These five lifestyle changes can make it easier to bulk up on emergency savings | | |  | WED, AUG 25, 2021 | | | | Can you afford a $400 emergency expense right now?
If the answer is "no," you are far from alone. Sadly, about 40% of Americans would struggle to come up with 400 bucks to pay for an unexpected bill, according to a Federal Reserve report.
If — or, more likely, when — someone is confronted with such an expense, they would most likely have to borrow money from family or friends or tap their credit card, which means taking on more debt.
That's why creating an emergency fund is such a critical tool for financial security – a fact that was reinforced for many when the coronavirus pandemic tested their ability to weather an economic storm. That emergency fund will allow you to handle living expenses a few months if you lose your job or if something unexpected comes up that costs a big chunk of money to cover. For instance, unforeseen medical expenses, home-appliance repair or replacement, or major car fixes.
Why do you need an emergency fund?
Emergency funds create a financial buffer that can keep you going in a time of need without having to rely on credit cards or high-interest loans.
Where do you put that emergency fund?
Typically, emergency funds should be held in a savings or money market account with easy access. Because an emergency can hit at any time, having quick access is key. So it shouldn't be tied up in a long-term investment fund.
So, how much do you need to save in an emergency fund?
The target amount to save varies depending on the individual or a family's expenses and risks. Most financial experts advise people to save enough to cover three to six months' of expenses in an emergency fund.
Keep in mind that emergency fund is not your personal money piñata. You don't get to crack it open for any seemingly urgent need. Therefore, it must be a big deal to tap that fund, like serious health-care issues, emergency surgery, losing your job, or if you cannot make rent or mortgage.
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