There is a general consensus that an emergency fund is an indispensable part of any individual’s financial planning. It serves as a buffer in times of trouble which reduces an individual’s stress levels.
What is the need of an Emergency Fund?
- Insures against the Untoward Situations: Protects you from emergency medical expenditures, car maintenance, home reconstruction, joblessness, or starting trips without planning.
- Takes the Burden Off your Mind: Having a cushion for obstacles takes away potential stress and anxiety in the face of uncertainties.
- Protects from Debt Trapping: Protects your exposure to high interest borrowing on credit cards or loans to make up for emergency expenses.
- Adds to all-round Financial Security: Aiding in the overall protection of the individual, assists in financial stability.
How to make your Emergency Fund
- Keep it Low to Start Off: Make your routine payments into the emergency fund lower in the beginning.
- Invest on Autopilot: Use the regular debit option to have a portion of your salary sent straight to your savings account on the first of each month.
- Leave no Stone Unturned: Treat allocating budgets for emergency savings as an inalienable determinant of your goals.
- Increase Contributions Gradually: Increase your contributions in relation to how much your salary increases to meet the requirement of the changing economic environment.
Main Insights:
- Consider having 3-6 Months Of Living Expenses: This is a basic threshold, but according to your situation the optimal amount will be different.
- Emergency Funds Should be Kept Accessible: Make sure you can access your emergency fund easily on a highyield saving account or money market account.
- Make New and Amended Contributions: Make new and amended contributions to the emergency fund in relation to present circumstances and acceptable risks on a periodic basis.
Sustaining The Emergency Fund Account
- Fund Monitoring Needs To Be Regular: Monitor your screen savings so that you do not fall off track in reaching your goals.
- Use Emergency Fund Carefully: Make a quick effort to replace the amount of money you have borrowed from your emergency fund after you spend .
- Annual Assessment of the Required Fund: Examine on yearly basis in light of modification in earnings , outgoings and appreciation of risk.
It is true that when you first start creating an emergency fund, it may appear difficult, but the end-result is well worth it. Without a doubt, when you have created sufficient savings to cover more than one expense in case of an emergency, you feel more assured and at peace whenever an expense pops up without warning.
Note: This write-up is a source of information in general only and should not be treated as professional advice on finances. Always reach out to a professional finance adviser for help.