How to Start An Emergency Fund
We all have the months when nothing seems to work for us. You could end up sick and need to pay a large bill at the hospital, come across problems with your car that need repairs and your bank account is showing signs of danger of hitting rock bottom without your monthly expenses paid for. At this stage, you could begin wondering whether things would have been better if you had arranged for an emergency fund for yourselves rather than depend on credit cards and your life savings. Things perhaps have been different if you had an emergency fund to meet the incidences we have spoken about.
[su_quote cite=”Dwight D. Eisenhower” class=”cust-pagination”]Though force can protect in emergency, only justice, fairness, consideration and cooperation can finally lead men to the dawn of eternal peace.[/su_quote]
An Emergency Fund Is Essential To Meet Contingencies
Not every expense will fall into the category of a contingency. If you need to go on a last minute vacation or purchase some clothes you cannot term it as an emergency. An emergency fund is designed to help you maintain your lifestyle even if you lose your job unexpectedly and cannot find another one for a short period. The fund should be able not only to bear your essential expenses but should also cover unexpected medical bills, house rent, Etc. You should have enough funds in the account to cover for at least three months worth of expenses. How much you decide to set aside will depend upon your monthly requirements but you should be covering for at least three months worth of essentials.
How Much Should An Emergency Account Have?
As mentioned earlier to be on the safer side your emergency fund must have enough money to cover for your expenses for three months. These are expenses which you would find difficult to live without and includes the rent, utilities, food, transportation, and any debt payments which you have to make. The total amount you have in the account will vary from every person but you should have saved up enough to cover the necessities in the event of a financial catastrophe.
What Can You Do With An Emergency Fund?
Once you begin building your emergency account you must make up your mind never to use the funds unless it is for one of the reasons specified. The temptation to use the money for something that is not needed should be resisted. You should even go to the extent of cutting up the ATM card which may have been issued with the account. Consider it as money that does not belong to you because the day could arrive when you may need those funds. Therefore decide not to touch the funds unless you are dealing with an emergency which cannot be managed.
Do not consider the emergency account as a savings account which you may have. This should be a separate account which cannot be accessed in a hurry. When you are dealing with an emergency it is likely for you to run around to have things organized and the emergency fund must be something similar. You should not have easy access to the account or the funds deposited within. You should try to save the money in an account which will probably impose charges on you for early withdrawals. The charges may seem expensive but could very well keep you away from spending the money at the drop of a hat. It should be clear to you that merely having an emergency fund account doesn’t mean you can create an emergency to utilize the fund’s yourselves.
You should be looking for an account that will give you some interest on the money deposited without imposing any charges for minimum balances. You will not be tempted into accessing the funds if they are harder to get. Make savings in the fund a nonnegotiable expense which would be deducted from the checking account the moment your paycheck arrives. This will automatically leave less money in your hands while the emergency fund would begin to have a healthier look.
You are not likely to come across commercials advertising emergency accounts from banks or credit unions. This is an account which you would have to open separately for the intention of usage only when emergencies strike you.
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