Money is the core of everything that is happening in this era. From the basic necessities to luxuries everything requires money. All of us will have to go through some unexpected situations in life and at those times it is crucial to have sufficient fund. Emergency situations can leave a person mentally disturbed, hence a backup plan needs to be there to battle such situations. Thus it is crucial to always have some fund saved for emergency situations. Though a considerable amount saved for emergencies is the best option to have financial stability, not many find this very exciting and an easy task.
Why Should You Have It?
Emergency funds are very helpful in many situations:
- It offers financial safety during emergencies
- Helps in avoiding credit cards and fund from unauthorized sources.
- Help during Job loss.
- Offers assistance during medical or dental emergency.
- Covers home repairs
- In case of car troubles.
- Assists during unplanned travel expenses, just to name a few.
For a family that lives on paycheck-to-paycheck may go through emergency situations even if anyone in the family had to go through a chronic medical requirement or job loss. These nuclear families should be the very first set of group who should try to save some fund from their regular income towards emergency funds. Its true many health insurance companies will cover major part of the medical expenses but here will always be a certain portion that will have to be borne by us. Also maternity funding situations are not covered by health insurance companies; this is another great example why it is crucial to have emergency funds.
How to Save Emergency Funds?
All those who have debts, will try to throw major part of the savings towards clearing debts. However, it is advisable to build a small bank balance while you are busy reducing the debt on one side. Most of the time what happens is the emergency funds will get used as soon as you start thinking it is growing. Apart from usual monthly expenses every alternative month most of us will have spare some money for repairs, fixtures, occasion, festivals and so on.
Considering all these we have put together 3 primary ways to save some money towards emergency fund even when the income is just as equal as expenses:
- Reduce recurring expenses
- Try ways to earn more
- Bring down discretionary spending
If you can focus continuously on these three aspects it will be much easier and possible to save something from your monthly income. While cutting expenses is easy for some, it is not usually that easy and convenient for most. This is why it is advisable to build extra income. Every extra income is equal to making a saving- it can be doing some home based business, being a part of freelancer business, applying for some part-time job or even creating an online store.
Where to Save the Fund?
The next big question is about where to save the fund? It is important save the fund such that is easily accessible and comes to help quickly. Thus it is not advisable to save these emergency funds in stock, bonds, mutual funds or even fixed deposits. These should be in most liquid form due to which the best option is savings bank account with online banking facilities or an ATM card. Also if you think you have lot of money as emergency fund; it is advisable to save it in different bank accounts. The main reason for this is during emergency situation ATM withdrawal limits should not be a constraint to withdraw your saved funds.
Emergency funds are savings, don’t consider these as earning for returns. Though the returns on savings bank accounts are very minimal, it is crucial to have it saved in such form for easy access. Apart from this there might be other safe saving options, it is upto each individual to pick the best option that suits their plans and offer good rate of returns.
How Much is Required?
Though the ultimate goal is to just have enough money for emergency needs, the question is around how much should be considered as ‘enough money’. Emergency fund should be the amount of fund that can cover your essential expenses up to six months or nine months. This figure can vary from person to person according to their level of income/ savings. In simple this expense should be to the extent that you are able to cover some big unexpected expenses without relying on credit cards. In case of any excess funding add it as bonus money towards your emergency savings!