An Emergency Fund is the best way for you to take care of yourself or your future and alleviate uncertainty and financial difficulties when your life is eventually complicated. Like other financial problems, pre-planning is a significant element in the effective management of the challenges we all face in our lives. However, recent figures show very troubling results. According to Bankrate, 28% of people are reported to have no emergency savings, and a new study indicates that 49% of people between 18 and 44 years old have saved no money for emergencies. The money set aside in an emergency fund shall not be used for expected expenditures, including electricity or Christmas gifts. It is money you have on a private checking account or savings account in a bank.
Many financial experts recommend that you save between six and twelve months of expenses in your emergency fund. If you lose your job, you will have enough money to get through for a considerable period of time before you get back on track.
How can you begin?
Build a separate high-yield investment account for unplanned costs. You can create an automatic transfer from your main account to your emergency account so the money will be put aside constantly and you will not even notice.
Debt repayment and emergency fund creation are essential in personal finances. Don’t pay less than the minimum of any debt just for your emergency fund, but create your emergency fund as you pay your debt if your minimum payments are manageable. For example, consider putting 50% of your available funds into additional debt payments and 50% into your emergency fund until you have at least six months of emergency savings.
Reasons why an Emergency Fund is important
The first thing you need to know is that it is merely a savings account that only exists to save you from trouble. If and when something very bad happens -such as losing your job suddenly -a fund will help give you peace of mind because you can focus on solving this issue instead of losing your time thinking how to get through.
The second thing you should know is that your emergency fund is focused on how much you can save. Not everyone can save the same amount of money every month, and that’s all right. However, six to twelve months of expenses is a good rule of thumb.
I know it sounds like a great deal of money, but remember you can break it down into small quantities for a certain period of time. Starting small will save big. Opening and depositing a savings account from $500-$1500 is a great start.
Breaking it into smaller quantities is a fantastic way to make saving less overwhelming, and once you have it up a little, it will be very nice to know that you have a safety net.
To ensure your family’s financial security, an emergency fund is required. No one can save ample money to pay for all of his expenses if he has a difficult economic time, accident, or illness. You are at risk of losing your house, car, insurance, and others. Consequently, it is vital for every person to create an emergency fund to ensure that the money is available if necessary. Having an emergency fund may help in the following ways.
Financial stability
It allows you to control your stress level. No wonder that life in an emergency endangers your financial well-being and causes stress. If you live without a safety net, you live on the “financial” edge- hoping to get through it without having to lose something valuable to you. Preparing yourself with an emergency fund would help you to cope with any unforeseen events without adding financial worries to your list. You do not have to obtain a costly payday loan and securities
Loans are expensive and risky, but if your back is up against the wall and you need quick cash, these loans may seem like a doable option, as they are not credit checks. However, you earn an interest rate that is higher than most conventional loans, and you run the risk of losing your vehicle by default with title loans. You don’t need to rely on expensive alternative loans with an emergency fund to get through a difficult time.
No need for financial support
There is no need to be ashamed if you need financial support. But you want to keep friends and family out of your business, understandably. If you don’t have any other option, borrowing money from them may be the only way.
Going to family or friends for financial assistance can become a problem because if you can’t reclaim the money, it can wind or build friction in your relationship. With an emergency fund, all this can be avoided.
You will avoid high-interest funding
By comparison to the renter, you are responsible for your property for repairs and maintenance. Some repairs may require immediate attention, such as a major roof leak in the middle of the summer, a broken window, or a broken HVAC system. If you have no immediate savings on this expenditure, some repair companies provide on-site financing, and often you will apply irrespective of your credit history. Nonetheless, the issue is that this form of funding has an interest rate far higher than that provided by banks and credit unions. Peace of mind
When you realize that you have a cash reserve, certain financial concerns can be alleviated. No one wants an emergency, but if one happens, you’re prepared to handle most of your expenses. Most panics, headaches, and sleepless nights can be stopped because you don’t have to think about how you will get through with an emergency.
Health freedom
Most of us do have health insurance, but there is too much it doesn’t cover: missed salaries, benefits, etc. With an emergency fund, you can get the best possible care because some hospitals need early payment.
Remember, planning for the future is always a good idea because you never know what life will throw. I would like to bring up again the phrase that Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” So, don’t fail to prepare your emergency fund, save and enjoy your peace of mind!
