It takes a minuscule amount of money to start and maintain an emergency fund. Everyone should have one, as it is useful in the direst of situations. Without an alternative place to pull money from, you’ll stress your savings or other related accounts.
The Specifics of An Emergency Fund
An emergency fund is an account where small amount of
funds are set aside for life changing situations. This is separate from your savings account, and is meant to
accrue a much smaller amount over a shorter period of time. With this fund, you
gain additional security without affecting the long-term benefits of a savings
account. The amount needed for an emergency fund is so small that you will not
notice it being taken out of your check. It makes a major difference when the
time comes to use the money for something important.
How Investing Helps
Credit cards have interest rates, and savings accounts can’t collect interest when money keeps moving. An emergency fund is meant to be used for large or small amounts. There are no consequences when pulling money out of an emergency fund. Investing in this type of account is smart, and it can grow or shrink based on your personal preference. At minimum, you want your emergency fund to grow enough to cover three months of expenses. The money doesn’t have to be deposited all at once, so set an amount, and slowly grow it until the goal is met. You can even set it up to pull a specified amount from your current account.
Types of Emergencies
Car repair, healthcare and divorce are some of the
emergencies that require special funding. For a car repair, there is no
guarantee that insurance will cover all the damages. With a healthcare
emergency, bills pile up in a matter of hours. Not having the money to get
treatment can put you in a life or death situation. A sudden divorce can put
all the finances in jeopardy, especially if your significant other drains the
main accounts. It’s unfortunate, but an emergency fund will keep you afloat
until a lawyer or judge makes corrections.
Things to Avoid
Don’t take a large chunk of your
current finances and dedicate it to an emergency fund. Doing so will just force
you to divert the funds in situations that don’t qualify as emergencies. Try to
keep the amount you transfer low, that way an emergency isn’t ‘created’ while
beefing up your new emergency fund. And just like a savings account, the fund
is meant to be used for its specific purpose. An emergency fund is not meant to
be used for day to day wants or needs.
If you can handle a regular checking account, then an
emergency fund will be a piece of cake. Think of it as the one investment that
always gives out positive dividends. Even if you don’t use it, an emergency
fund will be there to protect you from the world.
About The Author
Hi! I’m Vipul, a professional blogger and online advertiser based out in New Delhi, India. Always in a quest for new ways to make money, I detail out all possible opportunities that can help anyone to earn good bucks. You can connect with me on Twitter, Linkedin & Facebook