Emergency Fund 101: What Is It and How Much Is Needed?

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What Is an Emergency Fund?
An unexpected expense, like having to replace an iPhone, paying for a new transmission or visiting the emergency room, may be a financial strain if you're not prepared with an emergency fund.

An emergency fund should be separate from all other accounts, ideally even your savings. The trick is to only use the funds for financial emergencies without dipping into it for other reasons.

Your regular bills are not included in an emergency fund. Payments made monthly, semi-annually and annually should be included in your budget.

For example, a health insurance deductible for someone with a PPO plan is expected, because you're paying for medical bills out of pocket until you reach the deductible and that cost should be included in your budget based on the number of projected visits a year. However, if you unexpectedly visit the emergency room, you may have a large expense that may come out of the emergency fund.

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Withdrawing money from a 401K plan will leave you vulnerable after you retire.

Why Creating an Emergency Fund Is Crucial
There are many reasons to have an emergency savings fund. If you have to take on a large and unexpected expense without a surplus of cash on hand, you'll pay interest fees on credit cards and loans...(continued)
https://smartfinancial.com/emergency-fund