From unemployment to unexpected bills, a fund will help your personal finances to be protected, and stay financially stable. No one’s goal in life is to be expecting and solving worst-case situations all the time. However, if unplanned expenses happen and you’re not in a good financial position, the effects are not just traumatic but can create serious financial consequences. That is why you need an emergency fund.
What is an emergency fund?
An emergency fund is the amount of money that has been set aside to cover raised financial crises, or unexpected costs, that may occur such as:
- Unforeseen medical bills
- Unexpected car fixes
- Home-appliance repair or replacement
- Job or other income loss
- Property damage
- Family emergencies, etc.
Sometimes it may seem like a loss setting aside money for an emergency fund. But it can make you feel relaxed and help you easily move through stressful situations. It allows you to focus on solving the problem without the extra fear about finances during an emergency. The sooner you start saving on your fund, the better you can take the advantage of emergency fund benefits.
How much should your emergency fund be?
The emergency fund does not have to be a large, inaccessible amount, you can start with a small amount and increase it every month. There is no certain amount for everyone – it varies and depends on people’s financial means and lifestyle.
As emergency funds will vary from situation to situation, according to many financial experts an emergency fund should hold between 2 to 7 months of monthly expenses.
Where should you keep your emergency savings?
Your emergency fund should be in a safe place where you do not always have access. The best option where you can keep your funds is a simple checking account or an account that comes with a debit card or check-writing privileges.
To keep it short, you should not keep the emergency savings in your regular savings account. Your emergency fund account should be completely separate.
When should you use your emergency fund?
When suddenly an unexpected expense comes up, you may think that it is an emergency, that is not always the case. You need to ask yourself whether you need to use your emergency savings. You should keep in your mind that unless there is no other way of getting out of the situation, you should not use the funds in your emergency account. Loans can be an option to overcome this situation, but not always.
Are you still having a second thought if you need a fund or not? Here are some of the pros of why you absolutely need one.
1. It helps lower stress level and anxiety.
It is not a secret that when you meet unexpected costs, it can affect your financial well-being and cause stress and anxiety. If you do not have a separate fund or savings, you only need to hope you will not run into a crisis.
Having emergency savings will give you confidence and guarantee that you will quickly get rid of serious financial problems.
2. It helps to be prepared for unexpected expenses
Our life is full of unexpected occasions, and some of them can cause financial problems costing a lot of money. This could be from the smallest cost of the house to serious renovation problems.
This kind of unplanned expense in some cases, can create more significant problems, and if you’re not ready, it may cause your plans to crash.
3. It helps to protect yourself against a loss of income
None of us can imagine when we might lose our job or face a severe drop of income, unfortunately, this can happen at any time and have very severe consequences for our finances.
We don’t know what we would do if we were to lose our job today, how we would pay bills and living expenses. This is one of the main reasons why we all have to have emergency funds to survive in such a situation.
4. It helps to avoid debts
If you do not have an emergency fund, you will have to borrow money in the case of an unexpected expense or a drop in income. So you will get into debt. On the other hand, if you have an emergency fund, you can avoid taking debts since you will have the necessary amount set aside.
5. It helps to improve financial health
If you want to improve your financial situation, having emergency savings will help you. You can budget your money, avoid debts, and save for an emergency.
Without an emergency fund, you can get into debts, which will cause your financial health, will damage your finances, so it’s healthier to be prepared.
Whether you want to have an emergency fund or not will depend on your patience, will, ability to save, and financial goals.Getting money into your emergency fund will be difficult; sometimes you will get disappointed, and you will not want to continue. Still,t in case of great tolerance, you can cut off your expenses or increase your income.
Be patient and start making your emergency fund today and now.