The Importance of Having an Emergency Fund

The Importance of Having an Emergency Fund

Emergency funds are funds (liquid money) that individual save for unanticipated expenses like medical expenses or a car refurbish. Having an emergency finance might be the difference between a minute bump in your fiscal life and an absolute disaster in your whole life.

An emergency fund indemnify against life’s unanticipated expenses

Having an incredible emergency fund gives you a peace of mind. No single person wishes to survive on paycheck his entire life.  In fact, we need to be aware that anything can befall you any day; therefore it is critical to saving for the unforeseen eventualities. Emergency funds give you lots of freedom.

That said, when you make up your mind to leave an affiliation or your occupation becomes so intolerable that you have to depart ahead of finding another job or you wish to go to college or begin a company, having an emergency finance proffer you the liberty to do those things.

Saving cash separate from the cash you use to pay bills might help curb reckless spending. Sometimes when you see some huge number of cash in your account, you get a little cocky and somehow reckless. Saving the cash separately can assist you repress the temptation of spending it.

What is an Emergency?

Emergency cash is the kind of cash you put aside to unforeseen situations. That said, you need to know that not everything is an emergency; therefore, you ought to only have to use your emergency fund for a real emergency such as medical expense, car repair or home repair and accidents.  You shouldn’t use your emergency cash on things like vacation, shopping or even to upgrade your phone or computer.

How Much?

There is no definite amount cash that you need to save as emergency fund; however, it is always prudent to save emergency fund on a monthly basis from your salary. It might sound like an uphill task, but it isn’t, all you need to do is open an emergency account and then write a standing order for the bank to remit the emergency cash into your emergency account.

That said; when you are earning less money, you need to forego luxurious things to be able to pay for your emergency fund, for instance, you cut on expense such as eating out, entertainment and so forth. Cutting on the named effect doesn’t mean you cut it entirely you can do it once or twice in a month.

Where Should You Keep It?

Where to save emergency has always been a controversial topic! However, it’s a matter that you have to handle if you want your emergency fund saved safely. Despites how controversial it sounds, lots of people are suggesting that you should save emergency cash in a saving account, stock exchange, bonds and so forth; it is all understandable. However, the most important thing is you need to keep your cash where it is safe, and you can easily access it any time of the day.

With all this in mind, the only question that still lingers in the mind of many people is where the safest place to save emergency fund is?

If you save your cash in the bank, your money is not safe from inflation. Imagine a scenario where the inflation average is 3%, and the saving accounts pay less than 1% interest; it merely means year after the other you will be losing cash. With such an argument, you will find that saving emergency cash in a saving account is not the best option.

Stock and bonds

The other option for saving your emergency fund is in stocks and bonds. You can also save some emergency fund in a Roth IRA, and you will be able to withdraw your contribution without any penalty.

Credit card

Many would argue that credit cards have lots of limitation and disadvantages; however, in case of an emergency card can be a life-saving tool to say the list. Despite the hidden cost and high-interest cost that come with cards, you can still save an emergency situation with the help of the card. You can also save using the card even though they barely earn interest. The most advantageous thing about thing about the card is that your cash is always available.

Not yet decided?

If you are not sure whether or not you should invest your emergency cash it is time to make up your mind.  The greatest advantage of an emergency fund is the safety net it proffers if you are sucked from work or retire. Anyone is dispensable nowadays, and lots of work will be automated in days to come. That’s why you need an emergency fund; however, it is also why every individual requires more than one source of livelihood, for instance, rental property, a part-time job and so forth.  You don’t need to get so much from your side hustle, provided that something is coming in until you can find a new job.

Are you work guaranteed? Once again no one can guarantee that his work is 100% safe; however, several individuals have better job security than others whether this means that your job is guaranteed within the company it is fine.

Is your career in demand? If your career is in high demand, you don’t need to worry about anything since the agency you’re serving goes down/closes up you will still be able to get another job somewhere else.

Do you have enough cash in your salary accounts? Well, if you have cashed your salary, you can always loan yourself in case of an emergency and pay it back.  It sounds funny, but this approach is among the most commonly used by an individual across the world.

Do you own a Roth IRA? As mentioned earlier, Roth IRA is the most flexible account which you can easily withdraw cash from emergency funds devoid of any penalty.

Money on the Table

It is conventional wisdom that each person requires an emergency fund; however, all things about the subject are debatable. The minimum in your emergency fund should be sensible enough to support you when you get sucked or retire.

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