No matter how financially prepared you are, life has a way of throwing surprises that you never expect. This is why building a safety net for a rainy day is worth your time and dime for when the unexpected happens.
4 Reasons to Start Today!
Your emergency fund will be an extra stash of cash to keep aside when life throws financial surprises your way. Have a quick read on 4 surprises that should motivate you to start building an emergency fund today!
- Job Loss: You may lose your job for various reasons – retrenchment, poor performance, violating company policy, employee misconduct etc. Although you could live off your savings for a while, funds will soon be over. Hence, you need a financial cushion to get through the rough patch while you land the perfect job.
- Medical Expenses: Dealing with a critical illness or a trip to the emergency room can create a financial burden if you don’t have medical insurance. Even if you are entitled, most only cover hospital visits and major medical costs – whereas you may most probably end up shelling out the policy’s deductibles and miscellaneous payments.
- Car Repairs: Losing your wheels for a period of time – maybe to be fixed immediately or to be replaced (worst-case scenario) – means your mode of transport is compromised. This may affect the ability to commute and commit other family responsibilities.
- Household Repairs: Although your insurance covers some of the common issues, it still poses a challenge if you are subject to higher deductibles – such as painting the house, repairing basement floods, leaks in the ceiling, house cracks or anything else that may go wrong in you and your home.
All of the financial surprises may create a financial crisis, which can quickly tap your credit and may take years to pay off.
Save or Invest?
It is noteworthy to remember that, if you ever do have an emergency, you will need quick and easy access to funds. Therefore, it is advised that the emergency fund shouldn’t be in stocks or bonds – rather keep it in liquid cash.
How Much To Save?
There is no hard or fast rule on how much to save as it solely depends on your lifestyle, budget and requirements. However, the following is a great illustration of how far you can stretch your Emergency Funds if they are ever needed:
- Good: Saving a minimum amount of 3 months’ salary or living expenses. This will help you cover the basic and essential needs such as food, gas, rent and utility bills.
- Better: Saving a minimum amount equivalent to 6 months’ salary or living expenses. You may utilise this to people who depend on you financially such as your spouse/children.
- Best: As you get better at saving, try working towards stashing away 12 months’ salary or living expenses which gives you one of the best financial securities you may ever need.
Much of life’s negative surprises and unexpected events can be minimised by simply maintaining a well balanced emergency cash fund. Now that you have an idea about emergency funds – Get started now!