Emergency Fund – What it is and how to build one

Are you ready to face any difficulty that comes your way? As for job loss, unexpected bills and financial hurdles can come at you from any angle.

What is an emergency fund?

We save by setting a few goals like to buy a house, finance children’s education or to live happy and secure retirement. It’s a good thing to save for these goals, but it’s a great idea to set money aside to help with unexpected expenses. That way, one does not have to dip into those saving funds and lose progress.
An emergency fund is money set aside to use only when unexpected expenses occur that you don’t have to pay out of your pockets such as air conditioner repair.

Where to open an emergency fund?

A high yield savings account (it is a type of regular account but banks
provide high interest on this account) is a perfect place to store and grow
emergency funds which we can easily access. It should be a different
account separate from your other accounts in which you can clearly see
your savings process.

How to build your emergency fund?

If one wants to set up emergency fund, they can do it by following steps:

● Set goals
Planning and saving for an emergency fund is similar to planning for any savings goal: Choose a specific number and start small.

● Automate
Even if one sets aside a small amount every month to build an emergency fund, being regular is key. Automate savings by directly depositing money from paycheck into savings account. It can be a specific amount or percentage of paycheck.

● Watch and celebrate your progress
Keep watching your monthly savings process to be sure that it stays on track. Every month you add money to the emergency fund is considered a win.

● Only use it for true emergencies
It is tempting to use an emergency fund to cover expenses like travel or holiday gifts, it is best to withdraw funds at emergency time only. Using emergency funds for non-expenses can create lousy spending and savings habits.

● Replenish and grow it
Make sure to replenish the money that you spend from your emergency fund to ensure it’s ready in case it is needed again

How much do I need to have saved?

What amount you want to save and what you feel comfortable with. Person with stable income will need less than a person who works as a freelancer. The basic rule is at least to save 03 or 06 months living expenses.