There are many reasons why it is important to have an emergency fund. We all know that life is unpredictable and no matter how much you plan and organize things, unexpected costs always pop up at any time.
Why Do You Need An Emergency Fund?
There are several situations when you may need an emergency fund to deal with them such as unexpected medical expenses, car repairs, loss of income, unemployment, etc.
However, there is one situation which is often mentioned and it can occur so unexpectedly that many people don’t have an emergency fund for the sudden crisis i.e. job loss. This may be one of the greatest shocks in any one’s life in case they lose their job at work or at home.
You must know that no matter how well you planned things during your career a change in your full-time employment may lead to this situation. Although you might be a great employee, not all companies are expecting or encouraging continuous work from their employees and sometimes you reach your maximum potential at your workplace.
Another possibility is that if you or your family member falls sick, you might not be able to go to your workplace, or even if you go you might not be able to continue with your job. Losing a job is considered one of the most depressing events in your lifetime and it is important to face it calmly and deal with the situation immediately.
If you end up facing any of the situations mentioned above and you do not have an emergency fund, you’ll have to borrow money by taking an emergency loan. It may result in serious problems both mentally and financially. It may take years to resolve them and can also cause incredible stress and anxiety in addition to financial problems.
Having an emergency fund can help you deal with unexpected costs. But several people feel stressed and worried about saving up, therefore they fail to do it. In reality, it is not that difficult and the main requirement for that is to start saving as soon as possible. You should put more emphasis on building an emergency fund than anything else because if you lose your job one day, you need to be prepared for the situation.
Ways To Increase Savings
- Increase source of money – In order to have a healthy emergency fund, you can increase your income by doing some additional work. You can get a second job for a higher income. You can also start your own business or provide any kind of services which you are good at to earn money in an extra way.
- Cut down on unnecessary expenses – To save money for an emergency fund, you can cut down on unnecessary expenses. You can make small cuts in your expenditures and do some trading in order to make a little extra money and then transfer it to your savings account.
- Reduce your debts – You can reduce your debts by paying off your money as soon as possible, cutting down on unnecessary purchases, and selling off any unneeded assets until you have enough money to pay them off completely when needed.
How To Save An Emergency Fund?
Although there are several online resources that can help you in building an emergency fund, however, we have taken some simple steps to help you build a better emergency fund when needed:
It is very important that you plan everything properly before starting anything. It leads to making things easier for yourself and helps to avoid unnecessary losses at the time of crisis. Plan how much your expenses are, how much you can save, and how much you need to save. You should be prepared to solve any kind of financial problem.
You should be extremely careful when planning for an emergency fund. If you face any unexpected costs, which are hard to predict, you must have enough money saved in case they occur.
You can set a goal for yourself that you will maintain a certain amount of money in the bank at all times. Or even better, if possible you can aim for having an emergency fund of at least three months’ worth of your monthly expenses or salary. This goal would ensure that whenever an unexpected emergency occurs, you can survive temporarily without having to worry about money problems.
Start with small amounts and save in a separate account
You should start saving whatever you can. It may not be possible to save a large amount right away but you should always try to start from a small amount and then gradually increase the amount. You should allocate a percentage of your salary or income towards this cause and transfer it immediately to your savings account. You should save this amount in another bank account from where you can’t withdraw money.
Increase your monthly savings
When you start saving, try to increase the amount little by little on a monthly basis. It helps to give discipline into your saving habits and helps to concentrate on an emergency fund more than anything else. You should save regularly and increase the amount each time once you notice that your emergency fund is getting bigger and bigger.
Add extra money whenever possible
This is an easy way to save more money, but if done sincerely it can help you build your emergency fund in a short time period. You can do this by saving the change that you get from your purchases or by setting aside an amount of money every time you receive it into your savings account.
How much should your Emergency Fund have?
The amount you need for your emergency fund can vary from person to person. However, you can refer to the previous questions about what you spend on a monthly and annual basis and aim to have 2 to 3 times of those amounts available for an emergency at all times. It may be possible to have more, but it is recommended that at least 2 – 3 months’ worth of your annual expenses should be saved.
It’s also important to remember that this is a rough estimate only. You should increase or decrease it depending on your financial situation and income levels.
If you need urgent money in emergencies, you can take an emergency loan from a reliable institution such as Same Day Cash Loan. Thus, do not worry when you feel yourself in an emergency, either use your emergency funds or take an emergency loan.