Why You Need an Emergency Fund (and How to Make It Happen)

Flickr/Tax Credits

Flickr/Tax Credits

No one likes to think about financial emergencies. The big ones probably entail losing your job, getting really sick or falling prey to some other disaster. In other words, they aren’t just financial disasters, they’re personal ones whose effects extend far beyond the bottom line. Maybe that’s why we’re so reluctant to start an emergency fund. It’s like a bad omen; put that money in the bank and you may just have to use it.

According to a 2011 report, “Financially Fragile Households: Evidence and Implications,” nearly half of Americans wouldn’t be able to come up with even $2,000 within 30 days to deal with a financial emergency. Almost half of all households surveyed in the 2009 Survey of Consumer Finances had less than $3,000 in liquid savings, while 25 percent of Americans have no savings whatsoever, according to the Federal Reserve. In other words, a large percentage of people are living on the edge; one bit of bad luck and they could end up losing everything.

We all hope we’ll never have to face the most serious financial emergencies, but the reality is that without a financial cushion, even common, minor mishaps can throw your finances off the rails. The good news is, even a little savings can go a long way. Find out how to get started in my new post on Dividend.com.

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