An emergency fund is the amount of money that a person sets aside for unexpected situations that life throws at him. These events can be stressful, both emotionally and financially. These funds can be set aside for unexpected unemployment or accidents. In other words, an emergency fund is a personal saving amount that a person decides to set aside in case there are future uncertainties and unexpected or unforeseen expenses so that he feels financially stable. An emergency fund must be kept in an easily accessible savings account.
How to build an emergency fund?
Every person should keep aside a certain amount for unforeseen events and to tackle emergencies. Here is how to create an emergency fund:
A person should calculate the amount that he intends to save which in turn should be equal to three to six months’ expenses so that he feels financially sound and safe during an unforeseen event or mishap.
A person should set a saving goal for every month and decide to keep it aside as an emergency fund for unforeseen events such as accidents, unemployment, medical bills, natural disasters, etc.
Any amount matters. Even if a person saves the change of $5 to $10 in a jar, this can be moved to a savings account later or an app can be used for this purpose which can be customized based on the person’s transaction history or just according to their preferences.
Many times, employers decide to help employees by breaking up their paychecks into a savings account which can help the employees with their savings and emergency fund. The employer can help the employees by suggesting how much would be an appropriate amount to keep in their emergency stash to avoid these situations.
Where to invest emergency fund?
While creating an emergency fund a person should consider the following options: –
- High-yield savings account – A high-yield savings account which offers a higher rate of interest as compared to normal savings account should be considered. Not only are funds easily accessible in these types of savings account, but also such accounts provide many types of welcome benefits to the new customers.
- Money market account – Money market account is a lot similar to the high-yield savings account. A person can open a money market account online or at a local bank, and then access their funds through web based account management or at an ATM.
Save your tax refund
A person can save their tax refund once a year and move it into the savings and emergency fund that has been kept aside for these unexpected or unforeseen events or mishaps.
A person needs to assess and adjust their contributions in their emergency fund and check-in after a few months to check how much has been saved, and if needed, add more to meet the day- to-day expenses, loans, etc., in case of an emergency.
Uses for Emergency Funds
An emergency fund is an essential fund that every adult should utilize for unforeseen, unexpected scenarios to tackle emergencies. An emergency fund could be useful in the following scenarios-
- Unforeseen accidents – An emergency fund can be used in case of unforeseen accidents to bear medical expenses. An emergency fund could be used when the person is not physically fit enough to continue his or her job.
- Unexpected unemployment – An emergency fund can be used when a person is suspended from his job without prior notice or intimation.
- Natural disasters – An emergency fund can be used in the case of a flood, earthquake, drought, tsunami, etc., for when a person cannot resume their job and thus cannot be paid by their employer.
- Health issues – Bearing medical expenses which are unforeseen and unexpected can be paid off using a person’s emergency fund. Like if a person is diagnosed with cancer or any other such deadly disease, they can use up the emergency fund first and then apply for a loan to pay his medical bills.
Emergency Fund tips
An emergency fund should be kept aside and not used until and unless there is an emergency and definitely should not be used for regular day-to-day expenses. It is only set aside for unexpected situations and to tackle emergencies because emergencies can occur anytime. Not abiding by that would contradict the purpose of this type of fund.
Many companies offer bad credit emergency loans for such unforeseen and unexpected events in case a person has none, then they can opt for it. One such company is Yourownfunding. After the loan is sanctioned, they would have the liberty to use the entire amount as needed without their interference.
In conclusion, an emergency loan is not limited to the reasons mentioned by the person while applying. He can use it to tackle any other emergencies which he did not mention or failed to mention. The loan will eventually be paid with the interest rate. The interest rate for such loans are not high and can be opted for by people who are ready to pay the regular EMI of the principal along with the interest rate.