Lesson 1 of 3 · 2 minute read
Why a small emergency fund matters
A few hundred dollars set aside can keep a surprise from turning into debt.
Your car needs a $400 repair. Your kid needs new glasses. Your hours get cut. Surprises like these happen to everyone.
What happens without savings
Without savings, a surprise often means borrowing. That might mean a credit card, a Payday loanA small, short-term loan that's usually due on your next payday. The fees are very high compared to other loans.More in the glossary, or falling behind on a bill. All of these can end up costing more than the surprise itself, because of InterestThe price of borrowing money. You pay interest when you borrow, and you can earn interest when you save.More in the glossary and fees.
What an emergency fund does
An Emergency fundMoney set aside only for surprises, like a car repair or a medical bill, so you don't have to borrow.More in the glossary is money you set aside just for surprises. With one, a $400 repair is a bad day, not a crisis.
Start small
You don’t need thousands of dollars to start. A good first goal is $500. Once you reach it, keep going until you have enough to cover one month of expenses. After that, many people keep building toward three months.
Even $5 or $10 a week gets you moving. What matters most is starting.
What counts as an emergency?
Ask yourself three questions: Is it necessary? Is it urgent? Did it catch me by surprise?
- A car repair so you can get to work: yes.
- A medical bill: yes.
- A sale on a new TV: no.
When you do use the money, don’t feel bad. That’s what it’s for. Then start filling it back up.
Surprise costs happen to everyone, like a $400 car repair. An Emergency fundMoney set aside only for surprises, like a car repair or a medical bill, so you don't have to borrow.More in the glossary is money saved just for surprises.
Without savings, you may need to borrow, like with a Payday loanA small, short-term loan that's usually due on your next payday. The fees are very high compared to other loans.More in the glossary. Interest and fees can cost more than the surprise.
Start small. A good first goal is $500. Then keep going until you can cover one month of expenses.
Use it only for real emergencies, like a car repair or a medical bill. A sale on a TV is not an emergency.
Using this money is okay. That is what it is for. Then fill it back up.