Do You Need An Emergency Fund?
“To be prepared is half the victory” — Miguel de Cervantes
Who could have guessed right that there will be a pandemic through the year 2020? Many people lost their jobs, lived on low savings or nothing at all, and companies were wallowing in losses. The Pandemic is an eye-opener to the need for emergency funds as part of our financial goals.
Saving money isn’t always easy, but it’s likely to be less painful than not having money when you are faced with a crisis. Many people struggle to cover a substantial, unexpected expense when there is an unforeseen situation.
In life, we all have experienced unforeseen situations at a period of time in our lives. Some of these involve paying out huge sums of money, and they may arise at times when we can least afford to part with a lot of cash.
What is an Emergency Fund?
An emergency fund is an amount set aside in preparation for unexpected expenses that can arise at any time in your life, such as:
- Job loss
- Medical expenses
- Home or Gadget repairs e.t.c
These unexpected events can be stressful and costly.
Who are in Need of an Emergency Fund?
Everybody needs an emergency fund. Starting from singles to married, students to workers and retirees.
An emergency fund can help you stay on track and help shock-proof your finances.
However, the amount you need to save for emergencies varies according to your circumstances.
Self-employed people with fluctuating incomes should build larger emergency funds than those who earn a regular monthly salary. If you’re self-employed, your emergency fund can be used to cover some of your living expenses during the months when you earn less.
If you’re an income earner, you will require a large emergency fund that can scale you when you lose a job or you fell sick.
How to Build an Emergency Fund
Building an emergency fund from scratch can seem daunting but taking small steps toward saving can add up.
To get started on a savings plan, determine how much you want to set aside. Your exact goal will depend on your specific circumstances, but many experts recommend aiming for three to six months’ worth of living expenses.
If the amount you need to save seems alarming or overwhelming or you don’t already have any emergency savings, don’t panic.
Commit to saving a certain amount, then set aside a portion of your paycheck to go directly toward your emergency fund via direct deposit or automatic withdrawals.
If you’re paid different amounts on an irregular basis, transfer a percentage of each payment you receive into your emergency fund.
Where Should You Keep Your Emergency Fund?
Your emergency fund should be relatively liquid, meaning you can access it easily and quickly without charges on withdrawal or restriction on account. At the same time, you don’t want it to be so accessible that you are constantly dipping into it to cover everyday expenses.
Keeping your fund separate from your regular savings or checking account can help ensure you don’t spend it on anything other than real financial emergencies. To maximize your savings, you might consider keeping your emergency fund in an account that earns more interest than a regular savings account.
Conclusion
By setting a savings goal and then regularly contributing to your emergency fund, you’ll gain the confidence that you can handle financial emergencies — without jeopardizing your long-term goals. Dealing with the unexpected will be less stressful because you’ll have one less thing to worry about.
Start your emergency fund today by opening a separate account. If you can only afford to save an amount of money today, deposit that into the account.
