What Is Emergency Fund and Why You Should Have It?
Have you ever had any emergency where you will need to spend money on it? Well, we have always experienced that in emergencies like health hazards, sickness, accidents, or broken tools and things here and there. This is why we always need to have emergency funds ready in many of these unforeseeable situations.
What Is an Emergency Fund?
Well, emergency money or funds precautions money that you saved up either in your safe place or in your bank. Emergency money is used for anything unexpected, sometimes a large sum of money or sometimes any unforeseeable accidents. This can be useful for any time that you want
Some examples of accidents or anything that would require large amounts of emergency money such as:
- Unforeseen accidents that would require much money for medical expenses
- Major car or vehicle repair that requires money for fixes
- Home appliances, electronics repair, or even replacement
- Sudden unemployment
Why Is It Important
When you have emergency money ready, anytime there are accidents, it will make some buffers for your financial status. This buffer can keep you afloat, let you still afford necessities, and pay bills without sinking into the depths of debt or, worse yet, having to rely on credit cards that could give you emergency loans, but in return, with very high-interest loans.
There is nothing wrong with borrowing or using a credit card if necessary; however, the more you borrow, the higher the interest rate, and the more you will sink into debt, which is very dangerous for your financial situation.
It is important to always save up for emergency money, even though it will be just 10% or 5% of your monthly income. This way, you can save money for emergencies while still planning for your monthly spending.
How To Save Up Money For The Emergency Fund?
There are a few ways to ensure you always have emergency money at your disposal. One way is through financial planning, where you can plan how much money you can get from your income for emergency money. However, it would be best always to plan out your necessities, such as food, shelter, and clothing.
You can open up new bank accounts solely dedicated to emergency money. There, you can save up a few of your money, and anything you can afford could be used as emergency money. With internet banking, it becomes an easier and faster process too.
One notable key when saving money for an emergency fund is ensuring that at least 10% of your monthly income should come as an emergency fund. You should also differentiate your savings and investment funds from your emergency funds. Never use your investment or savings for emergency funds, but if there is no way, then so be it because sometimes it has to be done.
