If you think that it isn’t important to have an emergency fund, think again! We’ll tell you how to set up an emergency fund and deal with unforeseen circumstances.
Irrespective of how financially stable and prepared you are, life can throw curve balls that you never see coming. Emergencies don’t come with a warning. Unfortunate circumstances can throw your budget out of the whack.
Imagine a scenario in which you would need financial help and security. Such situations can appear like a bolt from the blue. The unpredictability of life makes it necessary for you to stash away at least six months’ worth of expenses in a Savings Account.
Additional Reading: Why Do You Need An Emergency Fund?
Say you’re temporarily out of employment due to unavoidable circumstances. If you have at least a few months’ worth of living expenses tucked away, you can live off of your savings while still looking for a job. On the other hand, without an emergency fund, you won’t have much choice but to go for the first offer you get, whether you like it or not.
Additional Reading: How To Deal With An Emergency Situation
If you don’t have a contingency fund in place, here’s everything you need to know in order to begin saving for one.
How much makes a sufficient corpus?
Emergency funds act as a cover for rainy days. Ideally, your emergency fund should be able to act as a cushion for at least 6 months. If you set aside a fund with more than 6 months’ worth of expenses, great. The more you can save, the better. This should be sufficient.
Additional Reading: Tips To Handle An Emergency That Costs More Than Your Emergency Fund
What should be the nature of the funds?
Unforeseen circumstances come unannounced and tend to make your finances go awry. Any investments you make to serve as emergency funds should be low-risk investments. In addition, they should be easily accessible. For instance, think of a Savings Account that can be easily accessed through an ATM.
Additional Reading: 7 Important Questions To Ask Yourself Before Dipping Into Your Emergency Fund
Can you automate your savings?
Yes, you 100% can. Once you’ve decided on how much to put aside each month, all you can do is simply ask the bank to deposit the amount from your checking account to your savings one. That way, you can’t skip saving and you’ll be assured that the specific sum goes into your savings.
Additional Reading: Why Should Women Have An Emergency Fund
Is saving money enough to handle financial crunches?
No, just setting aside an amount each month is not quite enough. Heard of inflation, right? Well, thanks to inflation, the value of your money lying in a savings fund decreases over time.
What we’re trying to say is, the amount that you think will cover your medical emergencies in 5 years will not be adequate for medical emergencies 15 years down the line.
So, at every stage in your life, it’s necessary that you review your contingency fund to make sure it is well-matched to your future needs.
Additional Reading: 7 Places You Should Never Keep Your Emergency Cash
The best way to counter an emergency is to be financially equipped for it. If you don’t already have an emergency fund, set up one now. We assure you that at some point, you’ll be quite relieved at having one.
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