Life Happens. In two words we are able to describe the importance of having an emergency fund. From a broken bone to a layoff, emergencies come and go, and sometimes, they are here to stay and change our lives forever. But, what exactly is an emergency fund and how can we make one?
What is an Emergency Fund?
An emergency fund is basically money you set aside or save that can help you survive and cover the financial surprises life throws your way. This is super important to have because when we are facing an emergency, most of the time we don’t have the time to think, save, and make a decision. These unexpected events can be stressful and costly, especially if it means a trip to the hospital or months without a job. Many people make emergency funds that can last them weeks, months, or even years. But how can we make a sturdy fund that can last us that long?
Where To Start
Since most experts think that making an emergency fund that lasts us about 3-6 months is the best choice, this is what you should have in mind before saving money. Start by estimating your costs for critical expenses, such as housing, food, health care, utilities, transportation, personal expenses, and debt. After calculating the most important expenses, multiply that times the number of months you want to create your emergency fund for, and voilá, you are finished. Well, you are just starting out with the basics, now comes the “saving part”. Most people find this step challenging but, try to save a bit each month until you have reached your goal. And remember, DO NOT use that emergency money for anything but a real emergency. Coffee at Starbucks does not count as an emergency.
Now, not everyone can save 3 to 6 months of basic expenses. And if we find ourselves struggling, it’s time to be realistic. What can you do instead? Try building up to it by saving smaller amounts on a regular basis, maybe $5 per day or $25 per week. If you keep this up, over time you will eventually meet your goal! Let’s put an example: Say you set aside $25 each week in your emergency fund. Each year you’ll be saving $1,300! And if you increase that amount to $50 per week, you could save up to $2,600 per year! Want to increase it a bit more? $75 per week makes $3,900 at the end of the year! When breaking up smaller portions of money each week, you won’t even feel the hassle of saving, just the benefits!
Where Should You Save Your Emergency Fund?
It’s safe to say you shouldn’t have that money lying away at home…it’s a real temptation! So, where’s the best place to save that money? Always go for a savings account with a high-interest rate and easy access. Don’t tie it up to a long-term investment fund since emergencies can happen anywhere and at any time! But also, don’t save it with the rest of your money or you’ll just use that money and think of it as a self-investment. But, why choose a high-yield savings account? The money here earns interest, and you can access your cash quickly when needed, whether through withdrawal or a funds transfer! Sounds easy right? It is! So start saving money!
What Is An Emergency Fund? Review
Life happens. And unfortunately, we are not always prepared financially to go through any type of emergency that may come our way. The best thing we can do for ourselves and our loved ones is to create an emergency fund that could help us survive the tough times we may face ahead. For more information on how you can create an emergency fund, follow us on Instagram @mediatordebtsolutions and contact us today!