Your fixed income can be interrupted due to life events or business problems. In such cases, if you do not have an emergency fund saved for the rainy days, you may have a real hard time.
Saving money is one of the measures you can take against potential financial problems, and an emergency fund is the way to go!
What is an Emergency Fund?
An emergency fund is a particular type of saving that functions as a precautionary measure against potential financial difficulties. For an efficient emergency fund, you should aim to save enough to meet your basic needs for at least a few months, until you have a stable income again.
Why Do You Need an Emergency Fund?
Here are some of the situations with potential financial loss:
Job Loss
Even if you are satisfied with your company and your supervisors are satisfied with you, you may become unemployed due to unexpected outside factors, such as an economic depression, or a pandemic! You may also find yourself fired or resigned because of a vital mistake, due events unrelated to you, or other reasons.
Severe Illness
To work efficiently, you must be in good health. However, it is always a possibility that a serious illness may find you or a family member. This may bring high treatment costs and loss of your income. You should consider that hospital and medication costs will be added to your monthly expenses.
Unexpected Accidents
Just like a serious illness may disrupt your fixed income, unexpected accidents may have the same effect. If this accident happens to you, you may become unable to work, or an incident may prevent the workplace from operating anymore.
Even if you work actively and earn well, you never know what predicaments you may have in future. Do you have enough money right now to feed yourself and your family and pay the bills if anything goes wrong? For how long? If your answer does not satisfy you, you should act to change this situation. To avoid troubled days, it is useful to take precautionary measures. Start saving with reliable finance applications.
Make a Budget Plan
There are some tips you can follow in order not to get lost among different saving methods. In emergency savings, it is recommended that you should list your expenses for at least 3 months, ideally 6 months. Create a monthly income-expense table. Then, calculate the amount you can save by considering your short and long-term plans.
Keep a Separate Account For Your Emergency Fund
It is quite difficult to save money in an actively used account. Thus, it is recommended to separate your active account with your emergency fund account. The money in your active account is likely to encourage you to spend more than necessary. Seeing a low balance in your active account, it’s easier to abstain from excessive spending!
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