Why You Should Have an Emergency Fund
Life is unexpected. After all, all the planning you do for a day can be thrown off in just a minute. The same thing can happen with your finances. If not a minute, over a month or a year. The common ground here is, is that you are the loser in times like this. However when everything seems to be going south, you realize, you have an emergency fund.
What is an emergency fund?
As the name suggests, an emergency fund is a pool of money you save up to use during times of need. For example, you could potentially lose your job without notice. A good emergency fund can cover living expenses until you find another stable source of income.
What are some good places to keep your emergency fund?
When we all think of saving, we think of keeping money in a jar or a piggy bank. However, this is just not practical as inflation is a huge factor in today’s economy. Simply put, keeping this money “static” can actually cost you more than you save in the long run. Instead, keeping your fund in an account with a high rate of return is best. This will typically be around 0.5–1% interest per year.
How much money should you have in an emergency fund?
Typically, 3–6 months of pure living expenses (meaning food, shelter, and other essentials) are recommended for a good fund. However simply put, this value will be different for everybody depending on your geographical location, family size, and overall needs.
After all this, how should I even build an emergency fund?
Building a fund is all about understanding your income, and how it can be distributed. If you make $225 per day, maybe $10 can go towards your fund. After all by the time a year passes, you would have already saved up around $3650. It is all about trying to find a comfortable value to deposit in a consistent matter.
If you can not decide on a value, there are automatic transfers, which calculate the best possible amount to deposit per month, and the benefit of it, is that it is completely automatic, so you don’t have to worry about forgetting to deposit anything.
Having an emergency fund, while seeming useless on a lot of days, can actually be a blessing later in your life. It is insurance for everything that happens in your life, and helps you get back on your feet during tough times.
