Having an adequate amount of emergency money can make all the difference when it comes to saving your life or getting someone else help.
A little bit of savings is great, but having enough saved up so that you could actually use it as money makes things more impressive.
This includes money for large expenses suchas major medical bills, trips, or even retirement!
It also helps in creating some basic safety nets for yourself and those around you. For example, if something happens to you, your loved ones would be able to cover certain things like housing and food.
Sadly though, most people don’t have much money set aside for emergencies. This is totally normal, especially since many people don’t feel like they deserve to spend money on things they want.
But we all need to acknowledge how important spending money is. It can keep us alive, save others live, and hopefully inspire other people to start investing now.
In this article, I will go into more detail about why having an emergency fund is very important and what kind of funds are needed.
Why should you have an emergency fund?
Having an adequate amount of savings in case of unexpected life changes or financial disasters is important to enjoy your life now, while also setting yourself up for the future.
A good rule of thumb is to have at least six months’ worth of living expenses in the bank account with no credit cards attached. This way, you will always know what money you have coming in, and it can be accessed quickly if needed.
Many people start saving consistently during times when their income is higher than normal, which is great! Unfortunately, that high income usually comes with a lot of extra commitments and responsibilities, so how do you retain your lifestyle while still putting away some cash?
The easy solution is to find ways to increase your monthly savings. More easily said than done sometimes though!
Luckily, we are giving you some tips here for having a little more cushion prepared ahead of time. These tips will not require too much additional effort or investment, making this goal achievable for everyone.
What is the best time to create an emergency fund?
One good way to do this is to make at least three monthly contributions to your savings, with the first one being the same amount every month.
This way you’re not making any changes to how much money you have in your account each month, which helps mitigate the need to change what you are saving for later on.
You can also choose to only have one large contribution per month, or even none at all if you feel that your income has stabilized.
How much should be in your emergency fund?
Most experts agree that it’s best to have at least three months’ worth of living expenses in an easy-access savings account.
That means for someone who needs $1,000 per month to meet her monthly bills, she should save roughly $3,000 — or more if you’re already saving some money in your savings account.
You can easily reach this goal by setting aside 10 percent of your income each paycheck into your savings. When your salary is docked for time spent in a personal crisis, keep up with your normal spending habits until your money is back in order.
But what happens when those personal crises happen less than three months out? If something happened today, would your savings hold enough weight to help you through? Probably not.
It’s hard to expect yourself to put away money you don’t have yet. That doesn’t make sense does it? Luckily, there are ways to increase the effectiveness of your savings without requiring lots of extra cash upfront.
Does it make sense to have multiple emergency funds?
An easy way to think about this is whether or not you’d like to buy a house with no savings. You want to make sure you have enough in your bank account to pay for a down payment, closing costs, and then some!
With that said, does it make sense to have more than one type of emergency fund? Probably not, at least not very much.
Why? Because all great wealth comes from creating things that people depend on, and people depend on banks and credit cards to meet their financial needs. By investing in a bank account that works well for emergencies, you are limiting yourself to just one source of income.
It also means there’s less risk if something happens and you run out of money because you’ve already got a cushion. On the other hand, if your bank fails and everything is wiped out, you lose all of those saved dollars.
The best place to put your money depends on what you hope to achieve and how much money you have access to.
What are the best ways to save your emergency fund?
First, you should know that having an adequate amount of savings in place is very important. Having this money can help you deal with unexpected events or disasters that may occur, such as job loss, major health issues, or natural catastrophes.
It also helps you plan for future expenses; for example, if you want to start a family, you need enough saved up for child care.
There are many different types of emergencies that can happen, from large-scale crises (such as full-on wars) to more personal ones (like when your car breaks down).
Should I liquidate my savings?
It is always smart to have an adequate amount of emergency funds in place. This way, you are not stressed about having enough money to pay for unexpected things that may happen.
It can be difficult to feel like you’ve got enough saved up when you don’t have much in the bank.
But what most people do not realize is that it is totally normal to feel this way.
Many people begin saving at work during their paid time so they can afford to buy something like a coffee or lunch. Or maybe they decide to put away some cash for a vacation trip next year.
All very good reasons, but what if the office needs someone to run a important meeting while you’re in charge of the conference room? What if your department gets shut down and you need to find new employment right after Christmas?
None of these events should create too much of a stress factor because you’ve prepared for them. You’ve made sure you’ll survive a financial disaster by investing in an emergency fund.
What should I use my emergency fund for?
One of the biggest mistakes people make when building their emergency funds is what they use it for. They believe that since they have an emergency fund, they can spend whatever they want!
Sadly, this isn’t the case. You can spend your money on things such as going out to eat or buying new clothes, but not taking care of important things like paying off debt or saving up for a car!
Don’t throw away all of your hard work by spending your emergency savings on non-essentials.
It will hurt instead.
When should I create an emergency fund?
A small, consistent savings program is the best way to build your emergency fund. Having an adequate amount of money in a non-recoverable state makes up for any fluctuations in income that may occur due to changes in employment or health.
It also helps you plan for unexpected expenses; if something happens and you don’t have enough saved, you will be forced to take out a loan or use credit cards, which could damage your credit score. Or, you might not be able to afford necessary care until you can restore your credit rating.
There are several ways to set aside money for emergencies. Some say keeping 6 months’ worth of monthly bills as a minimum is the best approach, but we think there’s no wrong time to start investing in yourself.
