An emergency fund is a financial security that can serve you in the event of unexpected expenses or the case of financial difficulties without necessarily resorting to high-interest debt or ruining your savings noted by Bahaa Abdul Hussein.
Here’s why having an emergency fund is crucial:
Financial Security
The emergency fund is a huge factor in financial security because it allows you to have a cash reserve. This can be used to pay for any unexpected expenses, such as medical emergencies, car repairs, or job losses.
Avoiding Debt
You may be denied to use of your credit cards or loans to deal with unexpected expenses. Thus, you will be forced to pay the interest that will accumulate, which will be a tough task to pay off.
Peace of mind
An emergency fund is a saving or financial buffer. It will make you feel a lot of relief when you know that you have such a backup for your survival in times of need.
Flexibility
The emergency fund enables you to handle unexpected expenses in a manner that does not influence your long-term financial goals or your retirement savings.
Reduced stress
Financial emergencies are usually tough to handle, but an emergency fund can assist you in dealing with such situations by providing a way and the funds to cope with unexpected expenses.
Opportunity Fund
An emergency fund is also a chance fund; therefore, you can take advantage of unexpected opportunities such as a job offer in another city or a sudden investment opportunity.
How Much Should I Save?
Finance experts say that people should have three to six months’ worth of living expenses in an emergency fund. Nevertheless, the amount you need can be different for you depending on individual factors, for instance, your income, expenses, and job stability.
The way to create an emergency fund is to start saving some money from your salary or income. You can deposit it in a bank account every month. You can also think about the expenses that you do not need and how to cut them down.
- First of all, get a savings plan based on your monthly spending.
- Dare to state that you can cut down on the way you spend on things that are not of importance, and therefore you can divert the money to your emergency funds.
- You will be able to justify your savings by transferring the amount of money from your checking account to your emergency fund automatically.
- Consider the use of bonuses, for example, tax refunds or bonuses, for raising your emergency fund.
Conclusion
The emergency fund is an essential element because it ensures financial security and confidence. Start the process of setting up your emergency fund the moment you start working so that you are safe from the unplanned events of life.
The article has been written by Bahaa Abdul Hussein and has been published by the editorial board of www.fintekdiary.com
