First things first. What is a “life happens fund”? Simply put, the concept pertains to a fund that’s needed for unexpected expenses such as a car breakdown, urgent dental work, an appliance that needs to be replaced, etc. Coined by Washington Post financial columnist Michelle Singletary, the term is meant to encourage individuals to set up a separate savings account in order to avoid dipping into their emergency funds. According to Singletary, the main difference between a “life happens fund”and an emergency fund is that the latter “should be reserved for dire situations such as a job loss.”
The emergency fund should have a minimum of three months’ worth of living expenses, meaning that if it takes $1000 to run your household, your emergency fund should contain at least $3000. Avoid depleting your emergency fund at all costs. On the other hand, Singletary states that the amount of money that should be kept in your life happens fund “depends on your life expenses. If you’ve got an older car you might stuff the fund with extra cash for car repairs. Aim to keep anywhere from a few hundred dollars to $1,000 in this fund at a minimum.”
Now the question is what happens when you don’t have the fund called “life happens”? Well, as previously mentioned, you should avoid dipping into your emergency fund, as this should only be reserved for big, life-altering events. If you’re slapped with an unexpected expense, consider a payday loan instead. You get the money instantly, and you’re set to pay it off when your salary rolls in. This is a much cheaper alternative to swiping your credit card or withdrawing too much from your account, because overdraft and unauthorized fees are very expensive.