Life is unpredictable. Every now and then life throws us a thunderbolt that leaves us reeling.
The Thunderbolt, when it comes took everyone by surprise. You should always be ready for a financial emergency.
When life presents an emergency it threatens your financial wellbeing and causes stress.
The best way to overcome this emergency and have a peace of mind is to have an emergency fund.
An emergency fund will help you in case of anything e.g. if you have lost your job, make car repairs or you got sick.
Every home should have a survival fund. An emergency fund is a stash of money set aside to cover the financial surprise life throw your way.
The fund is fundamental to personal finance; it’s a safety net that can help you cover unexpected expenses without breaking your budget, and without having to take on expensive debt.
When you find yourself out of employment; it’s likely going to be at the economic downturn.
The best recommended emergency funds are roughly more than twelve months of total expenditures.
The way to build up an emergency fund is either to make every possible reduction in the budget or find extra sources of revenue to help bulk up your savings.
Your financial emergency fund should be one to six months of total living expenses.
To figure out how much you will need, you have to figure out your total necessary expenses each month and multiply by the number you would like to have on hand.
According to the Bureau of labor, statistics say that the average unemployment is about three months, this is average.
Some people can be unemployed for one week, or two to three times the average. Some people can be out of a job for twelve months, or more.
So this should give you an idea on how much emergency fund you need to actually tide you over until you find your next job.
Any money is better than none. Figure out what works on your budget and build your fund based on that.
You can always reassess in the future to speed up your savings. The best way to make a contribution to your fund is by treating it as a line in your budget that is mandatory, just like any other bills.
Also, any money that you were not expected to have like tips or cash discounts on any purchase needs to go directly into your emergency funds.
The real strategy to make it happen is;
1. Set a strict and aggressive budgeting rule.
2. Set goals that are realistically achievable.
The goals should be tailored to how much money you are bringing in, and how your daily costs are.
It’s better to start with small and manageable goals that you can meet rather than setting too high goals and get discouraged.
An emergency fund as a financial planning tool is not an investment, you can correlate to insurance.
You pay a premium to an insurance company to cover you for uncertainty in future.
Emergency funds cost you money by putting aside every month or week, it does not make you money as an investment do.
The purpose of having the funds is specifically to cover you when things go bad. It’s an additional reserve of money separate from other long-term saving goals.
The funds should be kept in a savings account at a different bank from where you have your checking account so that you can’t even be tempted to cross transfer.
Keeping the money out of your immediate reach means you cannot spend it on a whim no matter how much you would like to.
The best way to avoid the temptation to withdraw or use it in scenarios that are not an emergency is to emotionally unplug from it.
Talk about other savings or investment that you have but don’t even talk about the emergency fund.
Being ready with an emergency fund gives you confidence that you can tackle any of life unexpected events without adding money worries to your list.
The fund gives you peace of mind and can help you lay a strong financial foundation that lasts you for years to come.
Without an emergency fund, you cannot have a financial stability. You have to have enough of a buffer in your financial life.
One thing that you have to remember, every single unexpected event is not financial ruin.