Why You Should Start an Emergency Fund
May 31, 2021 (Investorideas.com Newswire) Your financial portfolio is incomplete if you're missing an emergency fund. It's one of the best financial tools to have. Anyone that doesn't have one prepared should start as soon as possible. Read ahead to find out why.
Why Should You Have an Emergency Fund?
An emergency fund will help you cover small emergency expenses that aren't in your monthly budget, like unexpected trips to the mechanic to repair your car or a trip to the dentist after having a filling pop out. These are costs that you couldn't have anticipated, and that could throw your entire budget out of whack.
The fund gives you enough savings to handle a small, unplanned cost in a hurry with little consequence. You don't have any penalties for withdrawals. You don't have to consider waiting periods. It's simple. You can just pull the money that you need out of the account and deal with the problem right away.
The only thing that you should consider is how you will replenish the fund after you use it. That way, it can still function as a proper safety net when the next unplanned expense comes along.
If you're really ambitious, you can use your emergency fund to help you deal with bigger problems. With enough savings, you can use it to endure major life events that impact your income, like job loss or illness.
How Do You Build One?
The fund takes time to put together, so you don't want to leave yourself financially vulnerable while you're collecting your savings. You'll want to establish an alternative safety net to protect your finances. One of the easiest options for this is to go to a website like CreditFresh and try to apply for a personal line of credit. A line of credit is an open-end credit tool that allows you to withdraw funds within your limit and repay them at a later date. This can come in handy for small emergency expenses.
After you've created a safety net, you'll want to start building up your fund. Dedicate a portion of your budget to this goal. Move that portion into a high-yield savings account every month and watch it grow. Soon enough, you'll have a reliable emergency fund to work with.
If you want to speed up the process, you can cut household costs and try to add more savings into the fund. The sooner you have a full emergency fund, the better.
How Much Should You Save?
It depends on what your goals are. If you are hoping to pay for small urgent repairs and appointments, then you should strive to have at least $1000 in your account.
If you're hoping to get through a situation that could make you lose your income, then most financial experts recommend that you have at least 3 to 6 months' worth of expenses sitting in your account. These are not just personal expenses — these are expenses for the entire household. This can help you cover essentials for the whole household when something goes wrong.
An emergency fund is an excellent financial tool that allows you to handle financial hurdles without stumbling. You can pay for an unexpected expense and keep moving forward.
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