Life can be very unpredictable. Unexpected expenses can come from anywhere and at any time. An emergency fund is a money that is placed aside to cover unforeseen costs. Having an emergency fund may not seem like an essential for some. However, sometimes it’s better to be safe than sorry. Creating an emergency fund won’t require a lot of time and it can be beneficial to anyone.
Why it’s Important for Everyone
No one can ever predict when an emergency will occur. Medical bills, loss of employment, or even major auto repairs can happen unexpectedly and can be expensive. Whenever unexpected expenses arise, people tend to gravitate toward using a credit card or a loan from their bank to cover the costs. However, credit cards and bank loans may come with high-interest rates and they could end of costing more money in the long run. This is why having an emergency fund is crucial for all people. There’s no borrowing or repayment to worry about in the future and the funds are easily accessible.
How to Create an Emergency Fund
When someone is starting an emergency fund, there are a few things that they should consider. They would need to decide how much to save, where to store the funds, and how to build up the fund. Typically, people set aside six to eight months’ worth of living expenses for their emergency fund. This would cover their basic living expenses in the event that there is a loss of income or to cover unforeseen costs. When choosing where to place the funds, they would need to put them in a bank account or somewhere with easy access in case of an emergency. Some banks offer high-end savings accounts that will actually begin to gain interest over time. Choosing where the money will come from will vary based on the person’s personal preference. They can begin to set aside money little by little, cut down on their monthly expenses, and even hold on to their tax refund. Basically, any extra month accumulated can be used to build an emergency fund.
Having an emergency fund can definitely come in handy when you need the extra money. Shopping, birthday parties, or fancy trips should never be covered by the emergency fund. The money in this account is strictly for emergencies only. It doesn’t take much effort to build up an emergency fund and having one set up can provide you with peace of mind whenever the unexpected occurs.