Emergency Funds. That’s the word I always get to hear, whenever I have the opportunity to listen to professional talks or experts’ forums.
Experts are always suggesting that we make it a point to come up with what we call an “emergency fund” because it is vital to have one. The more I hear about it, the more I got interested.
In this article, I will be sharing with you some nitty gritty details about it which you may not have realized before. Allow me to share some of my thoughts with you.
Have you ever experienced going through an emergency situation where you were required to provide an amount of money but you simply could not since you did not have that “saved” money?
May it be sudden hospitalization, sudden loss of job, sickness, or even death of a family member. All these unfortunate situations lead you to the verge of bringing out your hard-earned savings. But what if you do not have such funds to do this? Should you watch the one you love get sick and eventually die?
No, most of the time, you’ll try to do your best to raise the funds needed. You borrow money, you grab all loan opportunities, and before you even know it, you are indebted to all possible loaning companies and banks. Later on, you will have have a hard time repaying, and you regret all the decisions you’ve made, thinking that if you had only saved for this unforeseen event, you would not be in this kind of situation.
I want you to read more about an “emergency fund” and how it can affect your goal of saving money.
1. What is an emergency fund?
An emergency fund is a part of your savings which is intended for financial surprises that might come along the way. This is sometimes called “a rainy day.” You do not want to be caught by surprise by these events! So, you need to have some cash set aside to spend when you need to save the day.
Some of these events may include the following:
• Car troubles such as accidents or just the simple need to change tires and batteries.
• Dental as well as medical emergencies which need immediate action and attention.
• Job loss brought about by a variety of possible factors
• Unexpected travel expenses that got out of your hand as you traveled
• Unexpected home repairs such as faulty wiring or simple leaking of water
• Loss of home due to natural calamity such as hurricane and typhoon (this one is painful, but it is true for some people, so saving an emergency fund is essential)
• And many more…
2. Why do you use this emergency fund?
There are three possible reasons I can think of as to why we would need to use our emergency fund. Number one: it keeps your stress level down. Instead of cramming and worrying too much about where and how you can get the much-needed money, you can sit back and relax because you know that you have something available for these kinds of emergencies.
Number two: it makes you limit your spending spree. It gives you the idea that emergency funds should not be considered for things which are not emergencies, for instance, a shopping activity. It is called an emergency fund for a reason, and that reason must prevail. Number three: it saves you from taking unhealthy financial decisions. You can avoid loaning or borrowing because these would only give you incurred interest, which won’t be helpful at all down the line in your economic life.
3. How much do you need to save?
Typically, experts suggest that you should have from three months up to six months of your monthly income set aside as your emergency fund, but there is an advised minimum for your emergency fund, and you can use this if you cannot afford the former option. At the very least you should have at least six times of your monthly expenses set aside.
Now, let say you are spending $1,350 on a monthly basis for your expenses, then you should have around $8,000 kept on your emergency fund account. You might want to ask “What if I’ am a single person how much would I keep as an emergency fund?” The answer to that is three times your monthly expenses. Why three times? Because as a single person, you don’t have as many responsibilities and liabilities to support and maintain respectively. The idea is that the more savings you have, the safer you become.
4. Where should you save your emergency fund?
Do not save your emergency fund somewhere where you could quickly and easily get it out in times of temptation or non-emergency situations. This will only make it difficult for you to maintain the savings since you will always be tempted by the idea that you have some cash and you could spend it in whatever way you want. To aid this, make sure that you save your EF in a separate bank account other than the regular bank account you use.
5. Why do people not save for an emergency fund?
Three possible reasons for this. Number one: you do not have the proper mindset nor a concrete goal for your saving. You always think that these unforeseen events might never happen and going through the hassle of saving an emergency fund will be a disturbance to your actual budgeting. Number two: you think that you could always save later on.
You do not do it right now! In short, you become complacent, and you think that emergency funds are not that really emergency since you can still spend some time to do it. Number three: you cannot budget your monthly income. By experiencing this, it becomes extra-challenging for you to save some money for an emergency fund.
6. How significant an emergency funds for expats?
Well, you know for a fact that as an expat, you are always the first person that others run to in case of emergencies. You, most of the time, will encounter unscheduled texts or calls from our loved ones back home since there are emergencies that you have to address.
As an expat, you try your best to give what you can to solve these needs. But more than that, you need to have your own emergency fund because remember, you might be living alone overseas! And whatever happens, you have got your back, and you cannot bug anyone else to help you.
So, if a personal emergency occurs to you, you need to have something to use. That’s why emergency funds are crucial for expats because it could save you from a lot of pain and trouble, most especially that you are very far from your families and loved ones.
In general, emergency funds are nevertheless a beneficial and crucial part of budgeting. If you could only do this the right way, you do not have to worry a lot, since you’d know that you had something to use in case that you were ever faced with life’s surprises. I hope that through this short article of mine, I was able to inspire you to begin your journey towards saving for an emergency funds. Good luck!
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Do you save the emergency fund? If “not” comment why. If “yes” comment your style of saving.