Keeping some money aside for a rainy day is an old practice. Even today, having an emergency fund can save you big time, especially when life hits you with the unexpected.
If you have been struggling to cover your bills and you end up finding yourself in a position where you cannot cover unexpected expenses, then you may benefit from having an emergency fund.
According to experts, having some liquid cash that can last you between three and six months without an income is highly recommended. This emergency fund should cover all of your expenses, including mortgage payments. Read on to learn more about emergency funds.
What Is an Emergency Fund?
An emergency fund is a stash of money set aside that can help cover any financial surprises that life may throw your way.
The unexpected events in life can be extremely costly and stressful, and an emergency fund helps to eliminate these issues, which include the following.
- A medical emergency
- Job losses
- Car troubles
- Unexpected home repairs
- Unplanned travel expenses
Reasons to Have an Emergency Fund
It Provides More Financial Freedom
Having an emergency fund is not an easy thing to achieve, but allocating some funds for emergencies gives you the freedom to live your life without as much stress, as the emergencies and the future has been planned for.
This means that you can live a more stress-free life, knowing that you have money saved up and you won’t have to pinch your funds to make ends meet in the event of a personal disaster.
It Keeps You from Wrongly Spending
One of the best ways of ensuring that you do not spend money the wrong way is to identify a use for it. An emergency fund is a good use for extra money that keeps it in check at all times.
When there is too much money at our disposal, sometimes we tend to misuse it and spend it on things that are not necessary. Then, when we are faced with an emergency, we start regretting why we spent the money in that way in the first place.
So, always ensure that you have a place where you can stash the money, so you do not end up with a stressful situation on your hands when an emergency arises.
It Helps You Avoid Bad Financial Decisions
It’s easy to make bad financial decisions when you do not have a plan. Having a budget that includes savings and emergency funds eliminates the possibility of using money in the wrong way.
An emergency fund stops you from keeping money in your checking account, where you might use it to spend beyond your means.
Keep money out of your immediate reach if you are serious about being prepared for emergency situations.
Open a savings account for emergencies at your bank, and ensure that you send a specific amount of money each month into the account.
It Keeps You Covered
Anything can happen in life. You could be in an accident, you could lose your job, or have an unexpected situation in your household that requires you to spend some money immediately.
An emergency fund deals with any unexpected financial situation you may encounter. This means that you can rest easy knowing that you will have your needs met at any time.
Financial experts advise that you should have at least six months’ worth of money set aside to keep you afloat in case of a job loss, where you will not be receiving the expected payment each month.
This is very wise, as it gives you enough time to look for another job, while all your bills continue to be paid as usual, and you do not end up in debt.
Conclusion
Wise people always have an emergency fund, and it is one of the most important things you can do for yourself financially. Start building your secure emergency fund today.