Importance of having an emergency fund

Courtesy: MGN Online
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MONROE, La (KNOE) -- According to Kelly Brantley, a financial advisor, emergency funds change a crisis into an inconvenience and help people sleep better at night, knowing they are protected in case of emergency.

For example, if the transmission goes out in the car, that is a crisis. If a person has the money to get it fixed, it will change it into an inconvenience. An emergency fund brings you the air you need to breathe during a difficult time.

Brantley said she meets with many people who don't have a fund like this.

"People kind of forget about needing an emergency fund until the emergency happens. So we want to make sure we have a plan," said Brantley.

If your income is $20,000 per year or less you should have a $500 starter emergency fund.

If your income is more than $20,000 per yea, you should have a $1,000 emergency fund. This will get you on the road to financial freedom.

What qualifies as an emergency?

If your vehicle breaks, hot water heater goes out, air conditioner or heater goes out, these are all considered emergencies; however, a vacation is not an emergency!

A fully funded emergency fund is three to six months of expenses. Total up your bills for the month and multiply that time three or six and that will give you your fully funded emergency fund amount. This will protect you against any unexpected event such as a job loss or illness.

If you encounter an emergency and deplete the fund, Brantley said there are a few ways you can build that fund. She recommended writing every dollar you spend on paper to keep track of where your money is going. She said to put extra dollars into the emergency fund first before paying extra on debt.

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