Emergency funds are the most essential part of financial planning. No matter if you are alone and take care of yourself, or if you are a part of a family, you must have emergency fund savings. Before you make any other plans to purchase any items or pay off debt, you must save money into an emergency fund. The emergency fund can be the difference between going completely broke and being able to deal with missing a few paychecks. Set aside money for an emergency fund starting now.
What is an Emergency Fund?
An emergency fund is just as it sounds. It is a fund that the family has saved in the event that an emergency happens. It is important to remember that this fund is to be used in the event of emergencies only. For ordinary expenses or times where you want money but have not planned for it, the emergency fund should not be touched. Normal savings for items that you may wish to have should go into another account.
Where to Keep the Emergency Fund
Emergency funds should always be liquid. Though it can be tempting to invest money that is just “sitting there” having a liquid fund is what will help you in the emergency. If you pipes burst in your home and the house begins to flood, having to wait to cash out your stocks for seven days will not be an aid in any way. The emergency fund should preferably be kept in a savings account or checking account that is untouched. Placing the emergency fund into a high interest savings account is the best idea.
How to Save for the Emergency Fund
Saving for an emergency fund seems to be the most difficult part of having one. To save for the emergency fund, set aside all extra monies that you have, aside from necessities, until you have saved up the emergency fund. To save, go without any extra items other than shelter, utilities, food, and transportation.
For the amount of the emergency fund, some will suggest that you have at least 1,000 USD, while others will suggest that you have at least three months of living expenses saved. Save the amount that you feel would comfortably take care of any emergency that you may have before going back to your regular spending. If possible, continue to save into the fund until you do have several months of living expenses saved. This would be the best possible scenario in the event of a job loss.
Having an emergency fund is one of the best first investments that you can make into your finances. When you have a fund set up to handle all of life’s emergencies and accidents, you can decrease your dependence on credit products and possible debt. Emergency funds are therefore, one of the first steps that everyone should take if they are interested in being debt free. Emergency funds are like your very own line of credit you saved up for in the event that an unseen need arises.
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