Although we won’t be dedicating an entire month to Frugal February like we did in 2011, we’ll still be doing a 1-2 weekly posts devoted to personal finance that are relevant to you as a savvy traveler.
The first subject on our list is the importance of an emergency fund for all travelers and why you must have one before you leave on any trip.
What is an emergency fund?
An emergency fund is a reserved amount of money set aside that is easily accessible and only to be used in an emergency.
Do I need an emergency fund?
Short answer – absolutely. In our opinion, if you can’t afford travel insurance and a decent-sized emergency fund then you probably shouldn’t be traveling at all.
Travel insurance can take weeks, if not months to pay out. So what happens if you’re injured whilst overseas and need to pay the medical bills before you check out of hospital? Or what if a family member passes away and you suddenly need to buy plane tickets so that you can be at the funeral?
An emergency fund will enable you to pay the bills and purchase those airline tickets without going into debt which would simply compound the problem.
As a result, an emergency fund gives you a contingency plan and peace of mind when you’re so far away from home. You can now travel without worry knowing that you’ll be prepared for whatever unexpected things get thrown your way.
How much money do I need in my emergency fund?
At least $1,000, but preferably a lot more. We would recommend having around $2,000 – $3,000 which should be enough to cover most of your emergencies including that flight home.
Experts say you should have three to six months worth of living expenses but that’s typically for those who may suffer an unexpected loss of income. For a traveler wanting to make the most of their time away with cash already in savings, that’s hardly realistic or necessary.
If you can’t come up with $1,000, at least have something. Every bit helps.
Where should I keep my emergency fund?
Your emergency fund needs to be easily accessible however it should be kept in a different bank so you’re not tempted to use it for an alternative purpose. The two of us keep our emergency fund in a high-interest savings account where it earns a nice rate of interest but it could also be in our bank accounts within 24 hours if needed.
Do you travel with an emergency fund? If no, why not and will you consider traveling with one in the future?
Want to share your personal finance story and guest post for Frugal February? Please contact us – we would love to feature your writing on Don’t Ever Look Back!