There is this popular adage that goes, “if you fail to plan, you plan to fail” and believe me, that couldn’t be further from the truth. In life, somethings are just inevitable, and no matter how much we’d love to think otherwise, some facts can never be changed. And a perfect example of such natural facts, is in the occurrence of an unforeseen circumstance.
Whenever we wake up each morning, we are all at the expense of nature and no one is guaranteed what next will come up. Some of these unforeseen circumstances sometimes could leave a long-lasting negative imprint on our health, psychology and even finances, which is why one ought to be very cautious about it.
Most times, things happen that need our financial support perhaps from a family member or acquaintance, who got involved in an accident and needs urgent medical attention, or our kid who got involved in a misconduct. Now, when that happens, what do you do? Is it the ideal time for you to start panicking? Absolutely not. Is it the right time to turn to an emergency fund? Of course, it is. But what if you never had an emergency fund, how can you build one? It’s quite simple, however, it is important that you first have an understanding of what an emergency fund is.
What is an emergency fund?
As the name implies an emergency fund is money that you set aside for the sake of any emergency that may occur in the future. The only difference is that an emergency fund is more like a savings than an investment.
And the rule of thumb as to how long you should build an emergency fund, as suggested by financial experts, is to make plans that falls between four to six months or above, for optimal result. So, now that you’ve known what an emergency fund is, how can you build it?
How to Build an Emergency fund
Like in every other task, especially for those of us who live by sight, starting an emergency fund could seem so long and frustrating. But if you’d want my candid advice, I would encourage you to start somewhere. In other words, start no matter how small, just start building something.
However, before you start building your emergency funds, there are some things you should consider especially in your monthly budget. And that is, be certain that whatever money you’ll be willing to set aside for your emergency funds won’t by any means affect your monthly bills. If it does, then you might want to consider setting a realistic target amount.
So let’s say you’re looking to meet a target of $40,000 in a year. If your total monthly budget is often above $3000, then you might want to consider reducing your emergency fund target to $20,000 or below. Now, doing this will ensure that your monthly budget is not tampered with, while still creating enough room for an emergency funds monthly deposit.
Where to Save Emergency Funds
Basically, there is no singular or best place to save an emergency funds. Nevertheless, you can choose to do so in your own savings account, or in a private account where you barely have access to except, you’ll have to go into the bank yourself to make withdrawals. In other words, choose an account where no debit cards are attached to it.
However, you have to be careful not to save in a place where it will be hard for you to withdraw your money, or a platform where the process of clearing your money for withdrawal will perhaps take days to be fully processed. Remember, it is an emergency and in such cases it’s always best one acts immediately.
In a nutshell, emergency funds are real-time financial heroes because anything could happen at any time, and it’s only if you had an emergency fund, then will you be able to scale through such an urgent financial situation.