CREATING AN EMERGENCY FUND

Bad things may happen to us in our lives. You have heard the saying, “Expect the unexpected.” And we need to be well-prepared for the unexpected. This is when you conclude how important an emergency fund is. An emergency fund is insurance for your short and long-term savings. When you have an emergency fund, you will not need to use the money you have saved for your short and long-term goals. Creating an emergency fund may include saving money, getting ahead one month of bills, budgeting and tracking expenses, prioritizing expenses, and many more.

You may have come to imagine losing your job, an accident, a sudden lockdown, being diagnosed with a disease, and other personal disasters. As you go through these experiences, you’ll realize the importance of an emergency fund. 

Photo: FamilyVest

CREATING AN EMERGENCY FUND

Most people overlook the importance of an emergency fund. They fail to realize having money designated for emergencies will keep you afloat when life throws you curve balls. 

Earlier, it said emergency funds were insurance for your long and short-range goals, and it is. But there’s more to it than that. What would you do if you lost your job today? How long can you last before your creditors begin to beat down your door looking for their money? 

Creating an emergency fund is very important—a must-do. 

IMPORTANCE OF HAVING EMERGENCY FUND

Emergency funds offer many benefits that will eventually save you from unwanted situations. Whenever something terrible happens to you, have your emergency fund, you will not have to take money from your grocery or vacation fund. You will avoid the need for a loan. Additionally, if you have emergency funds, your stress level will be lower in an emergency. You will not have to worry about the finances.

Think about this: You have just arrived home from work and saw your window broke (maybe some kids caused it). How will you pay for it? 

 Most homeowners have homeowners insurance. And most car owners have car insurance. Insurance pays for most of the damage, but the problem is they don’t pay for all of the damage. Almost all insurance contracts have a deductible. You pay the deductible. 

EMERGENCY FUNDS VS SAVINGS

Photo: Park National Bank

 

Emergency savings  

You’ll have to determine what is an emergency for you. What you consider an emergency and what I consider an emergency may be two different things. 

To you needing to pay a deductible may be an emergency because you are unprepared to spend that much money. I have a category in my budget for deductibles. It’s fully funded. It’s not an emergency to me. I’m ready.

An emergency fund needs to be a part of your budget. 

Regular savings 

Regular savings is for upcoming events and things like weddings, college for the kids, retirement, a car, house investments, and much more.

An emergency account is saving for emergencies. If you were saving money in your new car, you wouldn’t use that money on a vacation trip. The same holds for your emergency funds. Don’t use it unless it’s a bona fide emergency.

You should consider your emergency savings very important. 

Some things that are an emergency — are deductibles for insurance. Most people think if their car is damaged due to an accident, the company will cover the entire loss and bills, which is not always true. You must know how company insurance covers the loss or bills. Let us put you in a car accident situation (hopefully not going to happen). Your car insurance requires you to pay a deductible of three thousand dollars. Now you see the importance of an emergency fund. 

BENEFITS OF AN EMERGENCY FUND

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1. You have it covered. All the expenses of your emergencies are covered. You can pay the bills right away and repair the damage immediately.

2. You add financial stability to your household and loved ones. When you are financially stable, you and your partner will not have to argue regarding financial issues, which can negatively impact the relationship between your partner and your children; especially when they are old enough to understand the situation. Additionally, as you are financially stable, you have peace of mind.

3. You are more confident. With an emergency fund, you’ll worry less about money. Then, you’ll gain more confidence that you can solve financial problems. An emergency fund makes you more eligible to say, “I can’t do this.”

4. You don’t have to raid your short- or long-term savings plans to deal with an emergency. You have got it covered. 

EMERGENCY FUND GUIDELINE

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If you don’t have an emergency fund, you must start one. The experts recommend six to twelve months of living expenses, which means if you earn $10,000 per month, your emergency fund should contain $60,000-$120,000. But don’t be discouraged seeing all those zeros. You can achieve this little by little with discipline and willpower. If there’s a will, there’s a way!

Start by dividing your wages into your preferred budget; it should include the grocery budget, electric bills, water bills, vitamins or pills (if necessary), allowances, and of course — for your short-term goals, long-term goals, and emergency funds. 

Here’s my preferred budget:

1. Emergency Fund – 40% of my wage

2. Long-Term Goals – 20% of my wage

3. Short-Term Goals – 10% of my age

4. Others (grocery, allowance, etc.) – 30% of my wage

 

BEST PLACE TO KEEP YOUR EMERGENCY FUND

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Where is the best place to keep your emergency fund? You must consider some crucial things, such as: 1. safe from theft, fire, and flood, and of course — accessible. I recommend that you open an online savings account. A simple savings account will be adequate for most people.

CONCLUSION

To keep you in the hype, let me give a short recap of the benefits and importance of an emergency fund:

1. You have it covered.

2. You add financial stability to your household and loved ones

3. You don’t have to raid your short- or long-term savings plans to deal with an emergency

4. You are more confident.

 This article is written for you to validate the importance of emergency funds. I wrote this article bringing you the worst scenarios. You should start saving for your emergency fund today, don’t wait. I have given you examples of what can happen in real life. Creating an emergency fund is essential. Do it today.