Emergencies can come knocking any time and it is not in any ones control; however to be prepared for any circumstances is completely in one’s own control. Contingency funds can be of any size depending on various factors. In today’s world of market uncertainties and skyrocketing expenditures, setting up an emergency fund should be one of the top priorities.
A crucial part of one’s savings
Yes, emergency funds play a very important role in one’s personal financial management. Having money stashed in a high rate emergency funds account can stop one from borrowing money from people, use their credit cards to the limit, or take high-interest loans which all will lead to debt in the future. Emergency funds can be useful in many situations in one’s life like:
- Sudden big medical and dental expenses.
- Unexpected lay-off.
- Unexpected travel expenses.
- Household appliance repairing or replacement.
- Major car repairing.
The amount to be saved usually depends on one’s income and monthly expenditure. But the best rule is to save up to four to six months of one’s expenditure in one year. That is almost a half year expenses saved in one’s emergency fund. There are several emergency fund accounts to choose from which gives a higher rate of return and ultimate safety to one’s money like the one provided by Credit Hub Capital Pte Ltd.
Benefits of an emergency fund
There can be several benefits of setting up an emergency fund, but the most important one is that it gives peace of mind to the saver. Some of the benefits are listed below:
- Relieves stress: Firstly, as mentioned before having an emergency fund helps a lot in keeping ones financial stress aside and get a good night’s sleep.
- Protect from credit pressure: When in need of emergency cash one usually tends to use their credit cards, which is also a form of debt. Having higher credit debts can be dangerous for one’s financial condition.
- Secure one’s future: People tend to borrow from their retirement savings in an emergency which can lead to depletion of one’s future savings.
- Stops from unchecked spending: If there is an emergency fund then one cannot spend it alongside their normal expenditure money. Emergency funds should always be kept away from one’s general savings account.
Build an emergency fund
While building an emergency fund there are some pointers to be kept in mind:
- Set a monthly goal to save.
- Cut expenses if possible.
- If there is some money left after pay cycle shifts it to the emergency fund.
- Save the yearly tax refund.
- If possible supplements the monthly income.
It is pretty clear from the above discussion that setting up an emergency fund is the most needed requirement for the current economy. Also one should be careful while choosing an emergency account. It should be quickly accessible, separate from ones saving the account, and should have a higher yield as compared to others.