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We will eventually face unanticipated financial emergencies, whether it be a minor car accident, an unexpected medical bill, a broken appliance, a loss of income, or even a damaged cell phone. Whether they are large or small, it can feel as though these unanticipated bills come at the worst possible times.

An essential step to safeguard yourself against financial emergencies is establishing a savings account or an emergency fund, which is also one of the first actions you can take to begin saving money. You will be able to recover from these unanticipated expenses more quickly and get back on track to achieving your larger savings objectives if you have some money set aside for them, even if it’s just a tiny amount.

Emergency Fund Explained

A cash reserve that has been intentionally set aside for unanticipated spending or financial emergencies is referred to as an emergency fund. Common causes of financial stress include the need for vehicle maintenance, home repairs, medical bills, or a reduction in income.

According to some research, those who have a difficult time recovering from a financial setback have fewer reserves to help protect them in the event of an emergency in the future. They might rely on credit cards or loans, both of which can result in debt that is typically more difficult to repay. In order to pay for these expenses, they might also use savings from other accounts, such as retirement money.