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What is an emergency fund?

Updated on July 20, 2010

Save money for an emergency

What is an emergency fund?

What happens if the transmission goes out on your car? Most people get mad, panic, take their car to the repair shop and charge the repair on a credit card. Then they struggle to pay off the credit card.

If you have an emergency fund, this could be a much better scenario. It is never good to have the transmission go out on your car, but if you have $10,000 in an emergency fund, while you would be a little irritated at the inconvenience, you could easily take your car in , get it fixed and pay cash!

You should have an emergency fund set up in either a savings account, money market account or an interest bearing checking account. It should be fairly easy to get to, but not to easy. You don't want to be tempted to use the money to buy some new shoes or a set of golf clubs. This should be an emergency fund which means it should only be used for EMERGENCIES! If you car breaks down, your washer goes out or your roof start leaking. Something serious like that.

Most experts suggest to have 3-6 months expense setting in an emergency fund. It will make your life much easier to have an emergency fund.

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