An emergency fund is an amount of money you can access which could help you overcome financial hardship. There are people who spend all of their income and left $0 in their savings account; therefore, there is a chance when unexpected things happen.
According to a survey which was done by the Federal Reserve in 2019, when facing $400 unexpected expense, only 61% of Americans are able to cover it with cash, 27% need to borrow from friend or sell something, 12% would not be able to cover it at all. People with $0 emergency fund will not have enough liquid asset to pay the extra bills.
In reality, there might be a time when people experience the loss of job, repair to house or vehicle, or hospitalization. Having emergency fund becomes even more important during the coronavirus pandemic on 2021. Many people who have lost their jobs during this time period were suffering from financial difficulties. In fact, even though you may have made a financial plan previously, these unexpected things would interrupt your plan completely.
According to financial expert, it is suggested that people have enough cash to cover at least three to six months spending. For example, if your monthly spending is $4,000, you need to save between $12,000 to $24,000. Having such fund would reduce the need for people to apply for high interest personal loan. Such high interest loan would make your financial condition even worse when you need to pay the high interest afterward.
Therefore, saving for an emergency account is extremely important. If you have not yet realized the importance of emergency and do not have an emergency fund in your account, you may want to save for it now.