How to Build an Emergency Fund to Save You from Distress

When you find yourself struggling to even pay your bills and not being able to cover your daily living expenses. That means you are in big trouble.

But, it is never too late and there is still time to solve this financial puzzle. To give you a little hint, start with finding the best options that will help you build an emergency fund – that can get you out of trouble on a rainy day when you find yourself buried under debt. Many experts assume that liquid cash of at least three to six months of living expenses can work perfectly as your emergency fund.

Here’s the reason: the goal behind maintaining an emergency find is to cover you in the event of an unpredictable financial blow. It gives you the much-needed peace of mind in case you lose your job, become ill, or have to cover a major expense. But there are many reasons why you should work on increasing your emergency fund. So here you’ll find out the reasons you should have an emergency fund and how can you build an effective crisis fund that can give you the support you need to survive in a debt-ridden situation. Let’s find it out!

The Importance of an Emergency Fund

When you look back in time, you’ll find – life is full of unexpected events that befall randomly in front of you. Leaving you all confused and under pressure, and if you are not prepared for them in advance, you can bid farewell to your health and peace of mind.

Apart from that the importance of being financially capable can not be overlooked. So, when you are planning for some feasible expenses, the first thing you should know is how to build an emergency fund that can save your skin in a difficult financial situation. In time you’ll find out that people with an emergency fund are in a much better place to pay for a debt even when they are out of a job or facing some personal challenges.

How Much Crisis Fund Do You Need?

Everyone has a different set of financial needs. Depending on their income an individual may spend more or less. However, there are some expenses which you can not ignore. This includes house rent, loan EMIs, medical bills, and many more. Once you calculate these expenses, try to create a cash fund that can help you survive three-six months without any source of income, as mentioned earlier.

Knowing the current situation around the world, many people will agree that at least six months of basic living expenses saved as an emergency fund is a must at all times to manage contingencies efficiently.

These are the basics you needed to know before we dig deeper. Further, we elaborate on the reasons why you need an emergency fund, and how to capably maintain it.

You Need to Pay Off Your Debt

Whenever you find yourself lagging behind in paying off your debt, you can rely on your emergency fund. Your emergency fund can help cover the expenses you don’t budget for, such as car repairs or unexpected medical costs. You can use your emergency fund to deal with these stressful situations without losing your focus and negatively affecting the status of your life.

It is always suitable to pay money on debt right away and having an emergency fund enables you to handle all sorts of emergencies and related expenses. This is why you need to include an emergency fund in your budget until it meets the limit you have set upon it.

For Efficient Budgeting

When you’ve just started learning to budget, you may be unknowingly leaving out some of the important expenses that you need to plan for. Your emergency fund can take care of those expenses, and after a while, you can add those expenses to your budget for better financial stability.

Few of these expenses can be in the form of your annual taxes or other items like gifts or fees you might have to pay which you haven’t planned for. Your crisis fund is fully capable of handling these types of expenses, even if you have forgotten to include them in your annual budget.

You Have a Limited Source of Income

If you have a limited or only one source of income, the importance of maintaining an emergency fund cannot be stressed enough for you. In these trying times, a crisis fund can help you get through an unexpected job loss or illness that keeps you from working.

And, if you are the only source of income in your family, you should seriously consider having at least a year’s worth of expenses in your crisis fund.

In case you are just starting a family, you should start right away and keep increasing your emergency fund. A single person may think maintaining a crisis fund is not for him or her. However, uncertainties are part of everyone’s life which makes it a more significant venture that you cannot afford to overlook.

When You Don’t Live With Your Family

It can be expensive to travel back home, especially when you are making last time bookings for a flight or train. As long as you don’t maintain an emergency fund, it can hurt you badly, financially. But when you are prepared in advance, just to handle these kinds of uncertainties with an emergency fund, you can take these expensive trips, in case you have to deal with an urgent situation at home. Additionally, these crucial visits at home can be a reason for some medical emergency or worse. Having an emergency fund can help you deal with these difficult situations with calm and composure.

Conclusion

Now, you have more than enough reasons to create an emergency fund, not only for an emergency but for the uncertainties of life which no one knows about in present. So when you are prepared for these unexpected circumstances in advance it helps you to maintain your focus on the more pressing matters rather than spending attention on a minor hiccup in your life.