Views: 0

In times of crisis, many things can seem unpredictable. One factor that you can always rely on, however, is an emergency fund. Setting up an emergency fund is a great way to stay afloat financially, especially when you’re faced with major expenses that could put a bit of a dent in your bank account. By doing so, you can also keep yourself from having to rely too heavily on your credit cards or on loaning systems.

 

An emergency fund isn’t just something to save up for in the latter years of your life, either. It’s good to begin investing in these savings as early as you can, seeing as you never really know when a potential emergency can come. 

Where can you use an emergency fund?

People can have different ideas of what an emergency can entail. When setting up an emergency fund, it’s important to get a clear idea of what an emergency really is, in order to prevent yourself from spending these savings on other things. Here are a few possible instances where you can make use of an emergency fund.

1. Unexpected medical emergencies

Medical emergencies can encompass a variety of situations. These include accidents or sudden illnesses that may need immediate attention. You’ll also have to consider hospital expenses for your stay and procedures, as well as any medication you may need to take afterward. Certain medical emergencies will also require constant monitoring, so you may need to come back routinely.

2. Sudden loss of a job

An emergency fund in this situation can be especially helpful if you do not have any other sources of income. Your savings will be essential to make sure you can still pay for your necessities, as well as any bills you may have before you can get right back up on your feet. Ideally, your emergency fund should be able to cover up to 3 or 4 months of unemployment.

3. Aftermath of a natural disaster

If you happen to live in an area prone to natural disasters — such as floods, earthquakes, or hurricanes — setting apart some money to use when these occurrences hit can become a necessity. You can make use of it to find temporary accommodations or purchase food and groceries.

4. Major home or automobile repairs

Home and car repairs can take on a number of different appearances. These can come in the form of renovations to update older parts of your home to meet updated safety standards or sudden repairs to your car following a fender bender. This point can also tie into the previous bullet since natural disasters can cause damage to a home.

How do you start building an emergency fund?

There are a few steps you need to take once you decide to start creating your emergency fund. The first, and one of the most important, things you need to do is to set a monthly budget. Some experts recommend making use of the 50-30-20 budget plan. This rule stipulates that 50% of your income will go to your essential purchases — think groceries, rent, and utilities — 30% is spent on your wants, while 20% is set for your emergency fund. While 20% may not seem like much in the beginning, it can grow into a pretty sizable amount over time, especially if you make sure to consistently set aside part of your income. You can also choose to adjust the percentages of this budgeting system based on your needs, as well.

 

Once you’ve figured out how much to set aside per month, it’s time to look into where you should be keeping your savings. Some people prefer to keep their emergency funds hidden away in their own homes, however, it’s much more ideal to keep these funds hidden away somewhere more secure, such as a bank. This minimizes the risk of losing your well-earned money to burglaries or natural disasters. By keeping your emergency fund hidden away at a bank, you can also tamp down any urges to spend it on anything unnecessary. Ideally, you’d want to place your funds in a savings account that allows you to access the money quickly and conveniently, as soon as you need it. You can also opt to place the funds in a high-yield savings account so you can earn interest over time.

To sum it all up

Life is filled with a series of unexpected events that can throw a wrench into your plans, especially if you’re unprepared for such events. One of the best ways to stay on top of things is by setting up an emergency fund, which you can rely on in times of need. While this won’t be a foolproof solution to addressing any sudden crises, it can still aid you by making sure you have something to rely on without taking too much from your personal savings.