If your kids immediately ask, “How much should I have in an emergency fund?” the honest answer is, “It depends.” After all, it’s difficult to predict what emergency could arise or how long it could go on. How much should you have in an emergency fund?
#USED FOR DAILY EXPENSES RAINY DAY OR EMERGENCY FUND PLUS#
Saving for these things, plus an emergency fund, may seem insurmountable at first, but there are a few ways to get it all done. None of these examples are unexpected, necessary, or urgent events, so instead, teens should plan ahead to cover these costs. Emergency funds also shouldn’t be used for big events, like birthday parties or taking a trip during a gap year. Even when life wears out your teen, and they’re convinced a vacation, some new clothes, or adopting a new pet feels like an emergency, these nice-to-haves should be paid for with separate savings. Remember, emergency funds are for emergencies. Even if an emergency fund is minimal, having something in place helps soften the blow of unexpected costs with less money borrowed-and less to pay back. (And, parents, it’s good to remind your kids that you’re not the emergency fund, either!) Repaying debt can take a long time, especially when your teen is paying interest on top of the initial loan they needed to pay for an emergency. For instance, pulling money out of savings, or racking up high interest debt via credit cards or high-interest payday loans to handle the costs. Without an emergency fund, your teen might be left with some uncomfortable financial options. That includes losing a job, replacing a cellphone that was dropped into water, or an expensive root canal at the dentist-these are all expenses that could easily land them into debt one day. Even putting aside a modest amount could help prevent financial problems down the road if you need to cover unexpected costs-tomorrow, next month, or a few years from now. Why should you have an emergency fund?Įveryone, even teens, should try to have an emergency fund. Read more about common financial literacy terms for teens. It’s not really possible to save up for an emergency after the fact (hence, its name!). Ideally, emergency funds should be quick to access because they’re intended for sticky and often urgent situations, like unexpected medical expenses, or if your vehicle breaks down and needs to be repaired. This is money that should be easily accessible, so it shouldn’t be tied up with investments or kept where it could be difficult to withdraw quickly. Most people should aim to save three to six months’ worth of essential living expenses in an emergency fund.Īn emergency fund in Canada, sometimes also called a rainy-day fund, is a savings account designed to help cover the costs of unforeseen circumstances, a.k.a.Use separate savings to cover those costs. An emergency fund is there to cover emergencies-not parties, vacations, or new wardrobes.Emergency funds should be in a savings account separate from your everyday spending, but still easy enough to withdraw from without fees.Emergency funds act as a financial safety net, so people don’t need to pull from their savings or go into credit card debt if they need money to handle something unexpected.An emergency fund, also known as a rainy-day fund, are savings used to cover unexpected and urgent expenses, like a flat tire.
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