Things you should know before building an emergency fund.
Building an emergency fund is very crucial to prepare for unexpected events. How’s yours? Are you just about to start building your emergency fund? Read on to find some points you need to understand before you start.
Understand what kind of emergency situation you may face
Emergency situation can happen anytime without any notice. Common emergency situations include sickness, funeral, job loss, home and car repairs, and even natural disasters.
Emergency fund helps you in these situations. If your car breaks down, you can take money from your “car maintenance” savings. If you get sick, you can pay with your insurance. Because, yes, insurance also counts as emergency fund.
How much should you save?
The amount of money for the emergency fund must equal at least 3 months of living expenses. In case you lose your jour job, you still have 3 months ahead to find a new job.
Save the fund in liquid saving
As you know, investing in equity is a great way to save your money. But, having equity as an emergency fund is not a good idea, because selling equity requires the right time to avoid losses. Building an emergency fund must be done in liquid saving, thus the money can be withdrawn anytime you need it.
Bank account is best the option to save for emergency. It can be withdrawn using a debit card and without any penalty fees. Furthermore, choose the saving account that gives you high interest and low administration costs to maximize your fund. If you want to try saving account that gives you higher interest, you can try short term deposit.
Separate emergency fund from other saving purposes
Just because you save money in bank doesn’t mean you have an emergency fund. Remember that you need to separate your emergency fund from other saving plans, on a different bank account. So, if something urgent comes up, you don’t need to deduct other savings. An emergency situation is not the same as a perfectly planned holiday, hence you need to make two saving accounts.
Start saving monthly
Saving money regularly will help you build emergency fund without torturing yourself. If you have a trouble saving money regularly, you can opt to automatic saving in your bank. The specified amount of money will be transferred from your regular account to your emergency fund automatically. But if you think automatic saving is not for you, keep in mind that there are lots of fun ways to save that you can try.
You’ll never know what’s going to happen, so let’s start building emergency fund for your assured future!