You know you need to create an “emergency fund” for life’s unexpected expenses – but what exactly is an emergency fund and how does it work? Separate from your savings accounts (which should be ear-marked for long- and short-term goals like retirement, college and vacation), the emergency fund is meant to be used for truly unexpected expenses, such as car and home repairs; regular purchases like clothes and food do not count. Clearly many Americans are confused about how emergency funds work; one in four Americans has more credit card debt than emergency funds.* With a proper emergency fund (three to six months’ income) you should not need to use your credit card for life’s unexpected expenses.
*Bankrate.com, viewed February 23, 2013
I love it.