Why do We Need an Emergency Fund?- A Guide to Build an Emergency Fund

Emergency Fund- What It is ?
An emergency fund is a money you set aside for use in urgent situations. This money should be readily available to you when you need it. You can keep your emergency fund as cash at your home, or you could keep it in the bank. You should use this money in unexpected situations only.  
An emergency fund can be helpful to you in many situations, like paying your hospital bills, repairing your house, paying for unexpected travel, etc. Your emergency fund will save you in case you ever become jobless. This money will be your real hero in distress.
Why do You Need an Emergency Fund?
An emergency fund works as your backup when you face any financial depression. It protects you from drowning in debt when you don’t have an income source. If you have a personal emergency fund, you wouldn’t need to take high-interest loans or depend on your credit card.
If you already have taken a loan, an emergency fund can help pay it off too. That way, you don’t need to take out money from your monthly expenses and live comfortably. Also, this ready cash is helpful if you’re the only earner in your family. It will help you combat family emergencies like sudden illness of a member or job loss.
Freelancers or self-employed individuals should surely build an emergency fund. Such jobs don’t have any security and the income is also inconsistent. The fund can help you when you’re not earning enough.
Patients with serious health conditions need an emergency fund too. Medical facilities are expensive – and insurance money might not cover it all. Some patients need to visit the hospital every month. In that case, an emergency fund might just save your life.
Most importantly, we are currently in an uncertain situation due to the global pandemic. You might get laid off, or might need to rush to the hospital out of nowhere. Your emergency fund will help you cushion such sudden financial blows.
It’s like a safety net that saves you from financial mishaps; you get enhanced financial security from it too. Hence, it is necessary to build an emergency fund of your own. To build your fund, follow these steps:
How to Save Money for Emergencies?
It is standard to save about three to six months of living expenses as an emergency fund. The amount is adjustable depending on your financial condition. It seems like a lot of money at first, but you will need it in your emergencies. So, let’s look at the steps of building an emergency fund.
1.     Just Do It:
After you have made up your mind to create an emergency fund, start saving as soon as possible. Don’t wait till the end of the month or your next paycheck. At the start of each month, set aside a bit of money that goes to the fund.
2.     Set up an account:
It’s best to keep your fund in a savings account. Deposit a fixed amount of money every month into that account.
3.     Avoid Unnecessary Spending:
You might sometimes find maintaining your emergency balance a challenge – but it happens mostly because you didn’t plan your budget properly or are spending too much. Be aware of your expenditures, and cut down on your money outflow as much as possible.
4.     Save, save, and save:
Not only you should cut down your expenditures, but also save any extra money you can. This might seem hard or even impossible, but you will thank yourself later. If you receive any extra money outside of your income, be it tax returns, birthday, or wedding money; put it all in that savings account. It must be quite tempting to buy luxury goods, travel, or dine out with that money, but fight that urge for now.
5.     Invest, If You Can:
Always try to put your money into a high-yield account. If you think you have saved enough, move the extra money to a second account or money market funds. Invest in sectors that will make your money grow.
6.     Everything is Not an “Emergency”:
Stop taking out money from your account on every occasion or small events. Use the money only when you truly need to. For example: making a major repair to your car or home, installing appliances into your home, marriage, moving to a new city, unemployment, etc. Even when you spend money for any of these reasons, spend wisely. Don’t exhaust your account at a stretch.

Now you know how to create an emergency fund. This fund is an inseparable part of any healthy financial plan; it is like a personal insurance policy. So to make your future secure, get to saving!   

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